Problem 26-1A ThreePoint Sports Inc. manufactures basketballs for the Women’s Na

Question

Problem 26-1A 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 119,300 units. Amount Sales $4,533,400 Cost of goods sold 3,513,020 Selling and administrative expenses 508,495 Net income $511,885 Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $252,000. In July, normally a slack manufacturing month, ThreePoint Sports receives a special order for 10,000 basketballs at $28 each from the Greek Basketball Association (GBA). Acceptance of the order would increase variable selling and administrative expenses $0.74 per unit because of shipping costs but would not increase fixed costs and expenses. (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 $ $ $ Cost of goods sold Selling and administrative expenses Net income $ $ $ (b) Should ThreePoint Sports Inc. accept the special order? Link to Text What is the minimum selling price on the special order to produce net income of $5.11 per ball? (Round answer to 2 decimal places, e.g. 15.25.) Minimum selling price $

Explanation / Answer

Solution a:

Variable cost of goods sold per unit = ($3,513,020 - $960,000)/119300 = $21.40 per unit

Variable selling and administrative expenses per unit = ($508,495 - $252,000) / 119300 = $2.15 per unit

Solution b:

As there is net income of $37,100 from special order, therefore ThreePoint Sports Inc. should accept the speical order.

Required net income per ball = $5.11

Variable cost per unit associated with special order = $21.40 + $2.89 = $24.29

Minimum selling price on special order to produce net income of $5.11 per ball = $24.29 + $5.11 = $29.40

Incremental Analysis - Three Point Sports Inc. Particulars Reject Order Accept Order Net Income Increase (Decrease) Revenues $0 $280,000 $280,000 Cost of goods sold $0 $214,000 $214,000 Variable selling and administrative expenses $0 $28,900 $28,900 Net Income $0 $37,100 $37,100

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