Cost of goods sold ($3,600,000 - 960,000) / 120,000 = $22 variable cost per unit
ID: 2382064 • Letter: C
Question
Cost of goods sold ($3,600,000 - 960,000) / 120,000 = $22 variable cost per unit
Selling and administrative expenses (405,000 - 225,000) / 120,000 = $1.50 variable cost per unit
A) Prepare an incremental analysis for the special order.
270,000 (10,000 x $27) incremental sales
Less:
220,000 (10,000 x $22) incremental COGS
20,000 [(1.50 + 0.50) x 10,000) incremental selling and administrative expense
$30,000 incremental net income
b) Should Shurshot Sports Inc. accept the special order? Explain your answer.
Yes. It would increase total net income by $30,000.
C) What is the minimum selling price on the special order to produce net income of $4.00 per ball?
$4.00 x 10,000 = $40,000 net income needed
Total Sales - 220,000 - 20,000 = 40,000
Total Sales = $280,000
280,000 / 10,000 = $28.000 minimum selling price
D) what non financial factors should management consider in making its decision?
The main problem is that other buyers (current or potential) may find out about the special price and want it for themselves.
Explanation / Answer
Cost of goods sold ($3,600,000 - 960,000) / 120,000 = $22 variable cost per unit
Selling and administrative expenses (405,000 - 225,000) / 120,000 = $1.50 variable cost per unit
A) Prepare an incremental analysis for the special order.
270,000 (10,000 x $27) incremental sales
Less:
220,000 (10,000 x $22) incremental COGS
20,000 [(1.50 + 0.50) x 10,000) incremental selling and administrative expense
$30,000 incremental net income
b) Should Shurshot Sports Inc. accept the special order? Explain your answer.
Yes. It would increase total net income by $30,000.
C) What is the minimum selling price on the special order to produce net income of $4.00 per ball?
$4.00 x 10,000 = $40,000 net income needed
Total Sales - 220,000 - 20,000 = 40,000
Total Sales = $280,000
280,000 / 10,000 = $28.000 minimum selling price
D) what non financial factors should management consider in making its decision?
The main problem is that other buyers (current or potential) may find out about the special price and want it for themselves.