Question

* Problem 12-1 Sheffield 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 120,100 units. Sales Cost of goods sold Selling and administrative expenses Net Income Amount $4,804,000 3,503,718 447,783 $852,499 Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $228,000 In July, normally a slack manufacturing month, Sheffield Sports receives a special order for 10,000 basketballs at $27 each from the Greek Basketball Association (GBA). Acceptance of the order would increase variable selling and administrative expenses $0.73 per unit because of shipping costs but would not increase fixed costs and expenses. Prepare an incremental analysis for the special order (Round all per unit computations to 2 decimal places, eg. 15.25. If amount decreases net income then enter the amount using either a negative sign preceding the number eg.-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 Should Sheffield Sports Inc. accept the special order? What is the minimum selling price on the special order to produce net income of $5.17 per bar (Round answer to 2 decimal places, e.g. 15.25.) Minimum selling price $

Answer 1

1.

	Reject order	Accept order	Net income increase (Decrease)
Revenues	$                       -	10,000*$27 = $270,000	$                                                   270,000
Cost of goods sold	$                       -	($3,503,718 - $960,000)/120,100*10,000 = $211,800	$                                                 (211,800)
Operating expenses	$                       -	((($447,783 - $228,000)/120,100)+$0.73)*10,000 = $25,600	$                                                   (25,600)
Net income	$                       -	$                                                                                                        32,600	$                                                      32,600

2. Should accept the special order. so that, they can earn an additional net income of USD $32,600

3.

Target net income	$    5.17
Add: Variable cost of goods sold ($3,503,718 - $960,000)/120,100)	$ 21.18
Add: Variable selling and administrative expense ((($447,783 - $228,000)/120,100)+$0.73)	$    2.56
Minimum selling price should be	$ 28.91

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