Step 1
Incremental cost refers to the additional cost incurred on the production of the one extra unit of the output. The incremental cost is also refers to as the marginal cost.
Incremental revenue refers to the additional revenue earned by selling one extra unit of the output in the market. The incremental revenue is also known as the marginal revenue
A firm should invest on purchase of new machines if the additional cost of adding new machine is less than the additional revenue generated because of the purchase of new machinery.
The incremental revenue is calculated as follows:
The incremental variable cost is calculated as follows:
The incremental fixed cost is calculated as follows:
Profit is the excess of total revenue over total cost and is calculated as follows:
Based on the formulas given above complete the table:
B. The incremental revenue is 300,000 that is revenue increases by Php 300,000 if a new camera and new coffee maker is purchased.
The incremental cost is the sum of incremental variable cost and incremental fixed cost.
Due to the purchase of new coffee maker and new camera the increase in revenue is more than the cost thus, the manager should purchase camera and coffee maker.