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Concept of Incremental Analysis

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Boswell Plumbing Products produces a variety of valves, connectors, and fixtures used in commercial and residential plumbing applications. 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 sheduling 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?

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Solution Summary

The solution provides detailed answers to extend the explanation on each option Nick proposes, and also explaining and identifying relevant cost.

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Concept of incremental analysis

Depending on the decision that has to be made, the cost information will be different. For instance, if the senior manager wanted to increase the production run by 100 more units, then the relevant costs involved in the decision would be the incremental raw ...

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