Problem 7-1A (Part Level Submission) (a) Problem 7-1A (Part Level Submission) Sh

ID: 2498395 • Letter: P

Question

Problem 7-1A (Part Level Submission)

(a)

Problem 7-1A (Part Level Submission)

ShurShot Sports Inc. manufactures basketballs for the National Basketball Association (NBA). For the first 6 months of 2014, the company reported the following operating results while operating at 80% of plant capacity and producing 120,400 units.
Amount Sales $4,816,000 Cost of goods sold 3,762,008 Selling and administrative expenses 385,280 Net income $668,712
Fixed costs for the period were cost of goods sold $1,080,700, and selling and administrative expenses $192,640.

In July, normally a slack manufacturing month, ShurShot Sports receives a special order for 10,600 basketballs at $29 each from the Greek Basketball Association (GBA). 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.

Explanation / Answer

An incremental analysis for the special order:-

Revenue ( 10600 * 29)

(-) Variable cost of goods sold (NOTE 1) = 22.27 * 10600

307400

236062

Gross income

(-) Variable selling & administrative expenses (NOTE 2) = 2.1 * 10600

71338

22260

(NOTE 1) :- Variable cost of goods sold per unit = (3762008 - 1080700) / 120400

= $ 22.27 Per unit

(NOTE 2) :- Variable selling & administrative expenses = (385280 - 192640) / 120400

= 1.6

Increased Variable selling & administrative expenses per unit = 1.6 + 0.50 = $ 2.1 Per unit

Conclusion:- Special order should be accepted as increases overall net income by $ 49078.