Which One of the Following Would NOT Result in Incremental

question 73

Multiple Choice

Which one of the following would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product?

• A) Revenues from an existing product would be lost as a result of customers switching to the new product.
• B) Shipping and installation costs associated with a machine that would be used to produce the new product.
• C) The cost of a study relating to the market for the new product that was completed last year.The results of this research were positive, and they led to the tentative decision to go ahead with the new product.The cost of the research was incurred and expensed for tax purposes last year.
• D) It is learned that land the company owns and would use for the new project, if it is accepted, could be sold to another firm.
• E) Using some of the firm's high-quality factory floor space that is currently unused to produce the proposed new product.This space could be used for other products if it is not used for the project under consideration.

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Definitions:

Manufacturing Margin

The difference between the sales revenue generated from manufactured goods and the cost of goods sold (COGS) associated with producing those goods.

Variable Costing

A method of accounting that encompasses only the variable costs of production, such as direct materials, direct labor, and variable overhead, in the computation of product costs.

Net Income

The net earnings of a business once all costs and taxes are subtracted from its total income.

Variable Costing

An accounting method that only includes variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs, with fixed overhead treated as a period expense.