Flipies manufactures tote bags. The forecasted income statement for the year bef
ID: 2418163 • Letter: F
Question
Flipies manufactures tote bags. The forecasted income statement for the year before any special orders included sales of $4,000,000 (sales price is $10 per unit.) Manufacturing cost of goods sold is anticipated to be $3,200,000. Selling expenses are expected to be $300,000, and operating income is projected at $500,000. Fixed costs included in these forecasted amounts are $1,200,000 for manufacturing cost of goods sold and $100,000 for selling expenses. Rayco is offering a special order to buy 50,000 tote bags for $7.50 each. There will be no additional selling expenses, and sufficient capacity exists to manufacture the extra tote bags.
Requirements: Prepare an incremental analysis schedule to demonstrate what amount operating income would increase or decrease as a result of accepting the special order.
Explanation / Answer
Units sold before any special order = 4,000,000 /10 = 400,000 units
Fixed manufacturing and fixed selling cost is irrelevant as it will continue to incur even if special order is not accepted .
Variable cost of sales per unit = (3,200,000- 1,200,000) / 400,000
= 2,000,000/ 400,000
= $ 5 per unit
variable selling cost will not be incurred as there is no selling expense in case of special offer.
operating income will increase by $ 125,000 if special order is accepted.
Incremental sales [50000 *7.5] 375000 Less:Incremental cost of sales [50000*5] - 250,000 Incremental income 125,000Related Questions
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