INCREMENTAL ANALYSIS AND PRODUCT PRICING (45 Marks) PART A Special Order for a Manufacturer World Chemical Company recently received an order for a product that it does not normally produce. Since the company has spare production capacity, the management is considering accepting the special order. In analysing the decision, the graduate accountant is compiling the relevant costs of producing the special order. The production of the special order would require 7 000 kilograms of gelatine genotype (GG). The company does not use GG for its regular products, but the company has 7 000 kilograms of the chemical on hand from the days when it used GG regularly. GG could be sold to a chemical wholesaler for $15 000. The carrying amount of GG is $5 per kilogram. The company could buy the chemical for $6 per kilogram. REQUIRED: A. What is the relevant cost of the chemical for the purpose of analysing the special order decision? (5 Marks) B. Differentiate between Sunk cost, Opportunity cost, incremental analysis and outsourcing with examples? (10 Marks) PART B Make or Buy / Add or Delete and Competitive Pricing and Bidding Jamie is a manager of In-Flight services in Tiger Airways. He supervises the food and beverages section. Jamie is faced with a decision to make with regards to making desserts in house or outsourcing the desserts from Sydney bakery. Currently, all desserts are made in the in flight kitchen. He provides you with information on the costs of making desserts in house: Cost per dessert (S) Variable Costs Direct Materials (Food and Packaging) 0.12 Direct Labour 0.08 Electricity 0.08 Fixed Costs (Allocated to products): Supervisory Salaries 0.08 Depreciation of Kitchen Equipment 0.14 Total Cost per dessert $0.50