For the first 6 months of 2011, the company reported the following operating res
ID: 2379505 • Letter: F
Question
For the first 6 months of 2011, the company reported the following operating results while operating at 90% of plant capacity.Amount Per Unit
Sales $4,500,000 $50
Cost of Good sold 3150,000 35
Selling, admin exp 360,000 4
Net income 990,000 11
Fixed costs for the period were: cost of goods sold $900,000 and selling and administrative expenses $135000
In July, normally a slack manufacturing month, Company receives a special order for 9,000 items at $32 each from the another company. Acceptance of the order would increase variable selling and administrative expenses $0.50 per unit because of shipping costs but would not increase fixed costs and expenses.
a) Prepare and incremental analysis for the special order.
b) Should Company accept the special order?
c) What is the minimum selling price on the special order to produce net income of $5.00 per item?
d) What nonfinancial factors should management consider in making its decision?
Explanation / Answer
Reject Order
Accept Order
Increase (Decrease)
$4,500,000
$4,780,000
$280,000
$3,600,000
$3,824,000
$224,000
$450,000
$475,000
$25,000
$450,000
$481,000
$31,000
$29.00
Reject Order
Accept Order
Increase (Decrease)
Revenues$4,500,000
$4,780,000
$280,000
Cost of goodssold$3,600,000
$3,824,000
$224,000
Sellingadministrative expenses$450,000
$475,000
$25,000
Net Income $$450,000
$481,000
$31,000
Should Pro Sports Inc. accept thespecial order? YES Since it willincrease net income by $31,000 What is the minimum selling price onthe special order to produce net income of $4.10 per ball?$29.00
Cost of goodssold $224,000 / 10,000 $22.40 Selling administrativeexpenses $25,000 / 10,000 $2.50 Net Income $ $4.10 MinimumSelling Price