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: Cost of goods sold was 65% variable and 35% fixed; operating expenses were 70% variable and 30% fixed. In September, Leno Company receives a special order for 15,000 toasters at $7.6 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).)

Explanation / Answer

Variable cost of goods sold per unit = 2610000 * .65 / 350600 = 4.8388

Variable operating expense per unit = 839400 * .70 / 350600 = 1.6759

Operating expense for special order = (15000 *1.6759 ) =25138.90 + 3000 = 28138.90

Fixed cost of good sold is irrelevant as it will be incurred whether offer is accepted or not

Reject order Accept order Net income increase /(decrease) Revenue 0 114000   [15000*7.6] 114000 COGS 0 72582.72    [15000* 4.8388 ] - 72582.72 Operating expense 0 28138.90 -28138.90 Net income 0 13278.38 13278.38

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