Question

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 118,700 units.

		Amount
Sales		$4,748,000
Cost of goods sold		3,582,083
Selling and administrative expenses		503,262
Net income		$662,655

Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $235,000.

In July, normally a slack manufacturing month, ThreePoint Sports receives a special order for 10,000 basketballs at $28 each from the Greek Basketball Association (GBA). Acceptance of the order would increase variable selling and administrative expenses $0.77 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?

a. Yes

b. No

What is the minimum selling price per unit on the special order to produce net income of $5.13 per ball? (Round answer to 2 decimal places, e.g. 15.25.)

Minimum selling price

$

Answer 1

a)
	Reject order	Accept order	Net income increase (decrease)
Revenues	0	280000	280000
Cost of goods sold	0	220900	-220900
Selling and administrative expenses	0	30300	-30300
Net income	0	28800	28800
Working Notes:
Revnues = $10,000*$28 =2,80,000
Particulars	Amount ($)
Cost of goods sold	3582083
Less: Fixed cost	-9,60,000
Variable cost of goods sold (A)	26,22,083
Number of units (B)	1,18,700
Variable cost per unit (C=A/B)	22.09
Special order (D)	10,000
Variable cost of goods sold for special order (C*D)	220900
Particulars	Amount ($)
Selling and administrative expenses	5,03,262
Less: Fixed cost	-2,35,000
Variable Selling and administrative expenses (A)	2,68,262
Number of units (B)	1,18,700
Variable Selling and admn. Expense per unit (A/B)	2.26
Add: Increase in cost	0.77
Cost for special order ( C)	3.03
Special order (D)	10,000
Variable cost of goods sold for special order (C*D)	30300
b) Yes, the project shoould be accepted as there is increase in net income
c)
Profit per unit on special order=$28,800/10,000 = $2.88
Minimum selling price on the special order = $28 + ($5.13-$2.88)
Minimum selling price on the special order = $30.25