Chapter 25, Problem 14E

To determine

Concept Introduction:

Incremental Analysis:

Incremental analysis is used in the decision making doe the new business offers or opportunities. In this analysis the incremental revenue is compared with the incremental costs to calculate the incremental income or loss. The decision is taken on the basis of incremental profit or loss.

Direct Costs:

Direct Costs are costs incurred in the production of a product that are easily traceable to the product. Direct material is the material used in the production of product that is easily traceable. For example wood used in making chairs.

Indirect Costs:

Indirect Costs are costs incurred in the production of a product that are not easily traceable to the product. Indirect costs include indirect material, indirect labor and overheads.

If the management should accept or reject the new business