Problem 20-1A (Part Level Submission) ThreePoint Sports Inc. manufactures basket

Question

Problem 20-1A (Part Level Submission) ThreePoint Sports Inc. manufactures basketballs for the Women's National Basketball Association (WNBA). For the first 6 months of 2017, the company reported the following operating results while operating at 80% of plant capacity and producing 118,500 units Amount $4,503,000 3,448,500 Sales Cost of goods sold Selling and administrative expenses Net income 402,750 $651,750 Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $225,000 In July, normally a slack manufacturing month, ThreePoint Sports receives a special order for 10,000 basketballs at $27 each from the Greek Basketball Association (GBA). Acceptance of the order would increase variable selling and administrative expenses $0.73 per unit because of shipping costs but would not increase fixed costs and expenses (a) & (b) Your answer is partially correct. Try again (a) Prepare an incremental analysis for the special order. (Round all per unit computations to 2 decimal places, e.g. 15.25 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 4,503,000 Cost of goods sold 3,448,500 Selling and administrative expenses 402,750 Net income 651,750

Explanation / Answer

Note : For determining the profitability for special order , regular fixed cost are irrelevant & those should not be consider.

Revenue from special order = $27* 10,000 units = $270,000

Variable Cost of goods sold for special order = [($3,448,500 - $960,000) / 118,500 units] * 10,000 units

= ($2,488,500 / 118,500 units) * 10,000 units = $210,000

Selling & administrative expenses for for special order = [{($402,750 - $225,000) / 118,500 units} + $0.73 ] * 10,000 units

= ($1.50 + $0.73) * 10,000 units = $22,300

Incremental analysis for special order

Note : Since if the order is rejected than there will be no revenue or expenses in relation to special order . Thus the 'Reject order ' column above have 0 or nil value.

Reject order Accept order Net Income Increase (Decrease) Revenue 0 270,000 270,000 Cost of goods sold 0 210,000 (210,000) Selling & administrative expenses 0 22,300 (22,300) Net income $0 $37,700 $37,700

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