Question

FairWay Golf Carts manufacturers and sells a golf carts. The carts usually sell for $8,300 per unit. The company normally sells units as quickly as manufactured and does not maintain a finished goods inventory. However, during the most recent year, the company produced 21,300 units, but only sold 19,711. A foreign customer has requested to buy the other 1,589 units for delivery on December 31 of the year current year. The offered price is $6,325 per unit for all 1,589 units. Below are absorption-costing based calculations of ending inventory and net income, based on the 19,711 units already sold. Variable cost per item is $5,250. Fixed costs for manufacturing are $41 million. SG&A variable cost is $200 and fixed cost for SG&A is $10 million.

Variable manufacturing costs ($5,250 X 21,300)			$111,825,000
Fixed manufacturing costs			$41,000,000
Cost of goods manufactured			$ 152,825,000
Cost of goods sold ((COGM/#M)*#S)			$141,424,112
Ending inventory (#M-#S)*(COGM/#M)			$ 11,400,888
Sales (19,711 X $8,300)			$163,601,300
Cost of goods sold			$141,424,112
Gross profit			$22,177,188
Selling, general, & administrative costs
Variable (19,711 X $200)	$3,942,200
Fixed	$10,000,000		$13,942,200
Net income			$ 8,234,988

Prepare a revised absorption-costing based income statement, assuming acceptance of the 1,589 unit order. Also prepare variable-costing income statements (with and without the order). Compare the results and evaluate whether the order should be accepted.

Answer 1