ThreePoint Sports Inc. manufactures basketballs for the Women’s
National Basketball Association (WNBA). For the first 6 months of
2020, the company reported the following operating results while
operating at 80% of plant capacity and producing 120,100
units.
Amount | |||
Sales | $4,804,000 | ||
Cost of goods sold | 3,503,718 | ||
Selling and administrative expenses | 447,783 | ||
Net income | $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, ThreePoint 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.
(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?
What is the minimum selling price on the special order to produce net income of $5.17 per ball? (Round answer to 2 decimal places, e.g. 15.25.)
Minimum selling price | $ |
Solution :
(a) Incremental Analysis
Reject Order | Accept Order | Net Income Increase (Decrease) |
|
Revenue | $ 0 | $ 270,000 | $ 270,000 |
Cost of Goods Sold | $ 0 | ($ 211,800) | ($ 211,800) |
Selling and Administrative Expenses | $ 0 | ($ 25,600) | ($ 25,600) |
Net Income | $ 0 | $ 32,600 | $ 32,600 |
(b)
Should ThreePoint Sports Inc. accept the special order? | Yes, as the net income has been increased by $ 32,600 |
(c)
Minimum price to be charged = Cost of Goods per Unit + Selling and Administative expenses per Unit + Profit per Unit
= $ 21.18 + $ 2.56 + $ 5.17
= $ 28.91 per Unit
Working :
Per Unit | Amount for 10,000 Units | |
Revenue | $ 27 | $ 270,000 |
Cost of Goods Sold | ($ 3,503,718 - 960,000) / 120,100 = $ 21.18 | $ 211,800 |
Net Income | [($ 447,783 - 228,000) / 120,100] + $ 0.73 = $ 2.56 |
$ 25,600 |
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ThreePoint Sports Inc. manufactures basketballs for the Women’s National Basketball Association (WNBA). For the first 6...
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