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 118,800 units.

		Amount
Sales		$4,514,400
Cost of goods sold		3,560,532
Selling and administrative expenses		468,164
Net income		$485,704

Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $227,000.

In July, normally a slack manufacturing month, ThreePoint Sports receives a special order for 10,000 basketballs at $29 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?

                                                                      NoYes

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What is the minimum selling price on the special order to produce net income of $5.08 per ball? (Round answer to 2 decimal places, e.g. 15.25.)

Minimum selling price

$Type your answer here

Answer 1

Answer
a
	Reject order	Accept order	Net income increase(decrease)
Revenues	$                    -	$                290,000	$               290,000
Cost of goods sold	$                    -	$                218,900	-$               218,900
Selling and administrative expenses	$                    -	$                  27,600	-$                 27,600
Net income	$                    -	$                  43,500	$                 43,500
Calculation:
Per unit variable cost of goods sold	21.89	(3560532-960000)/118800
Per unit variable Selling and administrative expense	2.03	(468164-227000)/118800
Per unit shipping cost	0.73
In total:
Cost of goods sold	218900	10000*21.89
Selling and administrative expenses	27600	10000*(2.03+0.73)

2

Calculate minimum selling price
Variable cost of goods sold(218900/10000)	$              21.89
Selling and administrative (27600/10000)	$                2.76
Net income	$                5.08
Minimum selling price	$              29.73