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 120,400 units. Amount Sales $4,816,000 Cost of goods sold Selling and administrative expenses 3,700,304 492,084 Net income $623,612 Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $226,000 In July, normally a slack manufacturing month, ThreePoint Sports receives a special order for 10,000 basketballs at $29 each from the Greek Basketbal Association (GBA). Acceptance of the order would increase variable selling and administrative expenses $0.76 per unit because of shipping costs but would not increase fixed costs and expenses. (a) & (b) (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).) Net Income Reject Order Acсept Order Increase (Decrease) Revenues Cost of goods sold Selling and administrative expenses Net income (b) Should ThreePoint Sports Inc. accept the special order? Open Show Work Click if you would like to Show Work for this 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 120,400 units. Amount Sales $4,816,000 Cost of goods sold 3,700,304 Selling and administrative expenses 492,084 Net income $623,612 Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $226,000. In July, normally a slack manufacturing month, ThreePoint Sports receives a special order for 10,000 basketballs at $29 each from the Greek Basketball Association (GBA). Acceptance of the order would increase variable selling and administrative expenses $0.76 per unit because of shipping costs but would not increase fixed costs and expenses.

(a) & (b) (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? YesNo

Answer 1

a.
Incremental analysis is determining the incremental net income by accepting special order
The incremental analysis for special order is shown below
	Reject order	Accept order	Net income increase (decrease)
Revenues	$0.00	$290,000.00	$290,000.00
Cost of goods sold	$0.00	$227,600.00	-$227,600.00
Selling and administrative expenses	$0.00	$29,700.00	-$29,700.00
Net income	$0.00	$32,700.00	$32,700.00
Calculation of variable cost of goods sold
Variable cost of goods sold per unit	(3700304-960000)/120400
Variable cost of goods sold per unit	$22.76
Cost of goods sold	$227,600.00	22.76*10000
Calculation of variable selling and administrative expenses
Variable S&A	(492084-226000)/120400
Variable S&A	$2.21
S&A	$29,700.00	(2.21+0.76)*10000
Fixed cost will not change with special order and thus are not considered in incremental analysis.
b.
Yes, Company should accept the special order as this would increase the net income of company by $32,700.