E21-3 Moonbeam Company manufactures toasters. For the first 8 months of 2017, th

Question

E21-3 Moonbeam 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 (350,000 units) Cost of goods sold Gross profit Operating expenses Net income $4,375,000 2,600,000 1,775,000 840,000 935,000 Cost of goods sold was 70% variable and 30% fixed; operating expenses were 80% variable and 20% fixed In September, Moonbeam receives a special order for 15,000 toasters at $7.60 each from Luna Company of Ciudad Juarez. Acceptance of the order would result in an addi- tional $3,000 of shipping costs but no increase in fixed costs Instructions (a) Prepare an incremental analysis for the special orden (b) Should Moonbeam accept the special order? Why or why not?

Explanation / Answer

Variable cost of good sold per unit:

=($2,600,000×70%)/350,000

=$5.20 per unit

Operating expense per unit:

=(840,000×80%)/350,000

=$1.92 per unit

Incremental analysis:

B. Yes, accept the order as it increase the net income by $4,200.

Incremental revenue (15000×$7.6) $114,000 Less Incremental costs: Cost of good sold(15000×$5.20) (78,000) Operating expense (15000×$1.92) (28,800) Selling expenses (3,000) Net Income $4,200

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