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I need part A first to get part B

Exercise 7-3 (Part Level Submission) 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 (350,800 units) $4,377,600 Cost of goods sold 2,608,100 Gross profit 1,769,500 Operating expenses 839,000 Net income $930,500

Cost of goods sold was 67% variable and 33% fixed; operating expenses were 72% variable and 28% fixed.

   In September, Leno Company receives a special order for 23,300 toasters at $7.77 each from Centro Company of Ciudad Juarez. Acceptance of the order would result in an additional $3,050 of shipping costs but no increase in fixed operating expenses. 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 67% variable and 33% fixed; operating expenses were 72% variable and 28% fixed. In September, Leno Company receives a special order for 23,300 toasters at $7.77 each from Centro Company of Ciudad Juarez. Acceptance of the order would result in an additional $3,050 of shipping costs but no increase in fixed operating expenses. Prepare an incremental analysis for the special order.

Explanation / Answer

a) Reject Order Accept Order Net Income

Revenues

(23,300 X $7.77) $0 $181,041 $181,041

Cost of goods sold 0 116,034* (116,034)

Operating Expenses 0 43,126** (43,126)

Net Income 0 $ 21,881 $ 21,881

Cost of Goods Sold:

Variable cost: 2,608,100 X.67=1,747,427 ($4.98/unit)

$4.98 X 23,300 = $116,034*

Operating Expenses:

Variable cost: 839,000 X .72 = 604,080

604,080 / 350,800 = $1.75

$1.72 X 23,300 = 40,076+$3,050(shipping)=43,126**

b) leno should accept the special order

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