Question

Carney Company manufactures cappuccino makers. For the first eight months of 2019, the company reported the following operating results while operating at 80% of plant capacity: Sales (500,000 units) $90,000,000 Cost of goods sold 54,000,000 Gross profit 36,000,000 Operating expenses 24,000,000 Net income $12.000.000 An analysis of costs and expenses reveals that variable cost of goods sold is $95 per unit and variable operating expenses are $35 per unit. In September. Carney Company receives a special order for 40,000 machines at $135 each from a major coffee shop franchise. Acceptance of the order would result in $10,000 of shipping costs but no increase in fixed expenses.

Answer 1

Solution

CARNEY COMPANY
Incremental Analysis
			Net Income
	Reject Order	Accept Order	Increase (Decrease)
Revenues		$    5,400,000	$    5,400,000
Cost of goods sold		$    3,800,000	$ (3,800,000)
Operating Expenses		$    1,410,000	$ (1,410,000)
Net income/ (Loss)		$       190,000	$       190,000

Only variable cost and additional $10000 will increase if order is accepted.