Carter Company manufactures cappuccino makers. For the first eight months of the

Question

Carter Company manufactures cappuccino makers. For the first eight months of the year the company reported the following operating results while operating at 80% of plant capacity:

Sales (500,000 units) $75,000,000
Cost of goods sold 45,000,000
Gross profit 30,000,000
Operating expenses 24,000,000
Net income $6,000,000

An analysis of costs and expenses reveals that variable cost of goods sold is $80 per unit and variable operating expenses are $30 per unit.

In September, Carter Company receives a special order for 40,000 machines at $120 each from a major coffee shop franchise. Acceptance of the order would result in $10,000 of shipping costs but no increase in fixed expenses.

Instructions
(a) Prepare an incremental analysis for the special order. Should Carter Company accept the special order? Justify your answer.

Explanation / Answer

Sales value = 40000*120 = 4800000 Less - Variable costs = 40000*80 = 3200000 Less - Operating expenses = 40000*30 = 1200000 Less - Shippoing costs = 10000 Net Gain = 390000 Since there is a net gain, so company should accpet the ordre

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