Recently a senior manager walked into the cost accounting department and asked Nick Somner to tell her the cost of the D45 valve. Nick quickly replied, “Why do you want to know?” Noticing that the manager appeared somewhat startled by this question, he explained,” The cost information you need depends on the decision you’re going to make. You might be thinking of increasing a scheduled production run of 3,000 D45s by 100 units or scheduling an additional production run, or you might even be thinking of dropping the product. For each of these decisions, the cost information that you need is different.”

Using the concept of incremental analysis, expand on Nick’s response of “Why do you want to know?” What cost information would be relevant to a decision to drop the product that would not be relevant to a decision to increase a production run by 100 units?

  • CreatedSeptember 12, 2013
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