Question

Swifty Company manufactures toasters. For the first 8 months of 2017, the company reported the following operating results while operating at 75% of plant capacity:

Sales (350,400 units)		$4,380,000
Cost of goods sold		2,593,000
Gross profit		1,787,000
Operating expenses		839,900
Net income		$947,100

Cost of goods sold was 71% variable and 29% fixed; operating expenses were 81% variable and 19% fixed.

In September, Swifty receives a special order for 20,200 toasters at $8.09 each from Luna Company of Ciudad Juarez. Acceptance of the order would result in an additional $3,000 of shipping costs but no increase in fixed costs.

(a)

Prepare an incremental analysis for the special order. (Round computations for per unit cost to 4 decimal places, e.g. 15.2500 and all other computations and final answers to the nearest whole dollar, e.g. 5,725. If amount decreases net income then enter the amount 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
Operating expenses
Net income		$		$		$

(b)

Should Swifty accept the special order?

Swifty Company should acceptshould reject the special order.

Answer 1

Solution

	Reject Order	Accept Order	Net Income Increase (decrease)
Revenues		$            163,418	$          163,418
Cost of goods sold		$         (106,133)	$        (106,133)
Operating expenses		$            (42,218)	$          (42,218)
Net income		$              15,067	$            15,067

Requirement 2

The offer should be accepted

Working

Cost of goods sold total	$         2,593,000
Variable cost of goods sold (2593000 x 71%)	$         1,841,030
Variable cost of goods sold per unit (1841030/350400)	$               5.2541
Variable cost for special order (5.2541 x 20200)	$             106,133

.

Operating expense total	$             839,900
Variable operating expense	$             680,319
Variable operating expense per unit	$               1.9415
Variable operating cost for special order ((1.9415 x 20200)+3000)	$               42,218