Identifying the increment The incremental receipts attributed to proposals to expand total volume may not be the receipts actually collected from the new customers. The analytical rule is to compare the total receipts if the expansion proposal is accepted with the total receipts obtainable without expansion. Here follows a challenge. Suppose Van Horn's service department's present business is to service four different 500-customer groups who are now paying $15, $12, $10.50, and $8.50 a month, respectively. If we make the simplifying assumption that all the customers are alike except for the prices they pay, then the department will be able to increase its net cash receipts without expanding its total volume. How? By servicing the new group of customers stated a few paragraphs above at a price of $9 a month instead of servicing the least profitable group of its present customers-those paying only $8.50 a month-the department can increase its pretax net cash inflow by $250, a month [500 x ($9.00 - $8.50)]. It can do this without increasing its physical volume or increasing its total costs. This being the case, the expansion decision has to hinge on whether the $8.50 price is high enough to cover the incremental costs of expansion-and in this case we know it falls $0.25 short of the incremental costs, which average $8.75 a customer. Exhibit below shows this comparison graphically. Group A customers contribute $6.25 more than incremental cost; group D customers contribute $0.25 less than incremental cost. The 2,000 most profitable customers are the 1,500 in the first three existing groups, plus the 500 in the new group. All these can be served without increasing total volume and without incurring incremental costs of $8.75 a customer. 5 what would be your decision regarding customers of Group D? Group D customers are profitable or unprofitable for Van Horn? What would you suggest to do with Customers of Group D? The incremental cost figure applies to each portion of the total volume or just to the volume provided by potential new customers?