Exercise 7-3 Exercise 7-3 Indigo Company manufactures toasters. For the first 8

Question

Exercise 7-3

Exercise 7-3

Indigo Company manufactures toasters. For the first 8 months of 2017, the company reported the following operating results while operating at 75% of plant capacity:
Sales (349,200 units) $4,373,000 Cost of goods sold 2,591,000 Gross profit 1,782,000 Operating expenses 839,700 Net income $942,300
Cost of goods sold was 73% variable and 27% fixed; operating expenses were 83% variable and 17% fixed.

In September, Indigo receives a special order for 23,200 toasters at $7.75 each from Luna Company of Ciudad Juarez. Acceptance of the order would result in an additional $3,100 of shipping costs but no increase in fixed costs.

(a)

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. If amount decreases net income then enter the amount 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 $

$

$

Explanation / Answer

Prepare an incremental analysis for the special order

Reject order Accept order Net income increase (decrease) Revenues 0 (23200*7.75) = 179800 179800 Cost of goods sold 0 (4373000*73%/349200*23200) = (212088) (212088) Operating expenses 0 (839700*83%/349200*23200+3100) = (49404) (49404) Net income 0 (81692) (81692)

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