Leno Company manufactures toasters. For the first 8 months of 2014, the company

Question

Leno Company manufactures toasters. For the first 8 months of 2014, the company reported the following operating results while operating at 75% of plant capacity:

Sales (351,200 units) $4,381,500

Cost of goods sold 2,603,000

Gross profit 1,778,500

Operating expenses 839,000

Net income $939,500

Cost of goods sold was 72% variable and 28% fixed; operating expenses were 77% variable and 23% fixed.

In September, Leno Company receives a special order for 22,200 toasters at $8.1 each from Centro Company of Ciudad Juarez. Acceptance of the order would result in an additional $3,000 of shipping costs but no increase in fixed operating expenses.

Prepare an incremental analysis for the special order. (Round computations for per unit cost to 4 decimal places, e.g. 15.2500 and all other computations and final answers to the nearest whole dollar, e.g. 5,725. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Reject

Order Accept

Order Net Income

Increase

(Decrease)

Revenues $ $ $

Cost of goods sold      

Operating expenses      

Net income $ $ $

Should Leno Company accept the special order?

Leno should reject accept the special order.

Explanation / Answer

Variable cost per unit = 2,603,000@72% / 351,200      = $5.3364 per unit (COGS)

Fixed cost of goods sold= 2,603,000@28%                 =$728,840

Operating variable cost per unit = 839,000 @77%/351,200 = $1.89395

Fixed variable cost                        = 839,000@23%               = $192,970

Incremental analyis

should accept order as there is increase in net profit by $17,515

Calculation

COGS = 373,400*5.3364 + 728,840

Operating = 373,400 *1.8395 + 192,970 + $3,000

Before order(351,200units) with order(373,400 units) increase Sales $4,381,500 $4,561,320 $179,820 less:COGS 2,603,000 2,721,468 (118,468) Gross profit 1,778,500 1,839,852 61,352 less:operating expense 839,000 882,837 (43,837) net profit 939,500 957,015 17,515

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