Moonbeam company manufactures toasters. For the first 8 months of 2017 the compa

Question

Moonbeam company manufactures toasters. For the first 8 months of 2017 the company reported the following operating results while operating at 75% of plant capacity

sales (350,000 units) 4375000

cogs 2600000

gross profit 1775000

operating expense 840000

net income 935000

cost of goods sold was 70% variable and 30% fixed. operating expenses were 80% variable and 20% fixed.moonbeam receives a special order for 15000 toasters at 7.60 each from Luna Company. Acceptance of the order would result in an additional 3000 of shipping cost but no increase in fiaxed assets

a)prepare an incremental analysis for the special order

b) Should Moonbeam accept the special order. Why or why not.

Explanation / Answer

a).

Calculation of Variable Cost per unit:

COGS = (2600000 * 70% ) / 350000 = $ 5.20

Operating expenses = (840000 * 80%) / 350000 = $1.92

Total Variable cost per unit = 7.12

Contribution per unit for special order = 7.60 - 7.12 = $0.48

Incremental analysis for the special order:

Incremental Contribution (15000 * 48)                            $7200

Less: Additional Shipping cost                                         $3000

Increamental Profit                                                           $4200

b).

Moonbeam should accept the special order because by accepting this order Moonbeam able to generate Incremental profit of $4200.

Moonbeam should not accept the special order if it affects its sales to current customers.

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