Problem 7-1A (Part Level Submission) (a) & (b) SHOW SOLUTION SHOW ANSWER LINK TO
ID: 2418338 • Letter: P
Question
Problem 7-1A (Part Level Submission)
(a) & (b)
SHOW SOLUTION
SHOW ANSWER
LINK TO TEXT
(c)
Problem 7-1A (Part Level Submission)
ThreePoint Sports Inc. manufactures basketballs for the Women’s National Basketball Association (WNBA). For the first 6 months of 2017, the company reported the following operating results while operating at 80% of plant capacity and producing 120,000 units.Amount Sales $4,800,000 Cost of goods sold 3,600,000 Selling and administrative expenses 405,000 Net income $795,000
Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $225,000.
In July, normally a slack manufacturing month, ThreePoint Sports receives a special order for 10,000 basketballs at $28 each from the Greek Basketball Association (GBA). Acceptance of the order would increase variable selling and administrative expenses $0.75 per unit because of shipping costs but would not increase fixed costs and expenses.
Explanation / Answer
Number of Units = 120,000
Total cost of goods sold = $ 3,600,000
Fixed cost of goods sold = $ 960,000
Variable Cost of good sold = (3600000-960000) = $ 2,640,000
Variable Cost of godds sold per unit = 2640000/120000 = $ 22
Total selling & administravtive expenses = $ 405,000
Fixed Selling & administrative expenses = $ 225,000
Total Varaible selling & administrative expenses = (405000-225000) = $ 180,000
Varaible selling & administrative expense = (180000/120000) = $ 1.5
Incremental analysis:
The incremental anysis of special increase the Net income by $ 37,500
(b) Should ThreePoint Sports Inc. accept the special order - Based on the above, Accept the Special Order
(c) the minimum selling price on the special order to produce net income of $5 per ball =
Present Net income increased per unit thru special order = (37500/10000) = $ 3.75
Required Net income to be incresed per unit thru special order = $ 5
The difference to be incresed by selling price relating to special order = (5-3.75) = $ 1.25
Therefore, Revised Selling Price per unit thru Special order = (28+1.25) = $ 29.25
Reject the Order Accept the Order Net Income Increase (decrese) Revenue $ 4800000 $ 5080000 Cost of goods sold $ 3600000 $ 3820000 selling & administrative expenses $ 405000 $ 420000 addition cost per unit @.75 $ 7500 Net Income $ 795000 $ 832500 $ 37500