Question

Problem 7-1A a-b, c (Video)

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 120,000 units.

Amount

Sales$4,800,000

Cost of goods sold3,600,000

Selling and administrative expenses405,000

Net income$795,000

Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $225,000.

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 $0.75 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
OrderAccept
OrderNet Income
Increase
(Decrease)

Revenues$$$

Cost of goods sold

Selling and administrative expenses

Net income$$$

(b) Should ThreePoint Sports Inc. accept the special order?

NoYes

What is the minimum selling price on the special order to produce net income of $5.00 per ball? (Round answer to 2 decimal places, e.g. 15.25.)

Minimum selling price$

Answer 1

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		Reject Order	per unit	Accept Order		Net Income Increase/(Decrease)
Revenue		$   4,800,000	$          40.00		$    5,080,000	$                                         280,000
Cost of Goods sold:
Variable		$ -2,640,000	$         -22.00		$   -2,860,000	$                                       -220,000
Fixed		$     -960,000			$      -960,000	$                                                   -
Selling and Admin Expense
Variable		$     -180,000	$           -1.50		$      -195,000	$                                          -15,000
Shipping			$           -0.75	10,000*$0.75	$          -7,500	$                                            -7,500
Fixed		$     -225,000			$      -225,000	$                                                   -
Net Income		$      795,000			$       832,500	$                                           37,500
b. Should accept the order since income is increased by $37,500
c.
Variable Cost of goods sold		$          22.00
Variable Selling and Admin		$            1.50
Variable Shipping		$            0.75
Desired Income		$            5.00
Minimum Selling Price		$          29.25