Question

Moonbeam Company manufactures toasters. For the first 8 months of 2020, the company reported the following operating results while operating at 75% of plant capacity: Sales (341,600 units) $4,375,000 Cost of goods sold 2,610,800 Gross profit 1.764,200 Operating expenses 841,190 Net income $923,010 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 23,100 toasters at $7.85 each from Luna Company of Cludad 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 2 decimal places, e.g. 15.25 and all other computations and final answers to the nearest whole dollar, e.g. 5,725. 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 Operating expenses Net income (b)

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 (23100*7.85)	$0.00	$181,335.00	$181,335.00
Cost of goods sold	$0.00	$123,585.00	-$123,585.00
Operating expenses	$0.00	$48,607.00	-$48,607.00
Net income	$0.00	$9,143.00	$9,143.00
Calculation of variable cost of goods sold
Variable cost of goods sold per unit	(2610800*70%)/341600
Variable cost of goods sold per unit	$5.35
Cost of goods sold	$123,585	5.35*23100
Calculation of operating expenses
Operating expenses	(841190*80%)/341600
Operating expenses	$1.97000
Operating expenses	$48,607.00	(1.97*23100)+3100
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 $9,143.