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 120,300 units.

		Amount
Sales		$4,812,000
Cost of goods sold		3,494,721
Selling and administrative expenses		492,021
Net income		$825,258

Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $243,000.

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?

(c) What is the minimum selling price on the special order to produce net income of $5.19 per ball? (Round answer to 2 decimal places, e.g. 15.25.)

  

Answer 1

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		Reject Order	per unit	Accept Order		Net Income Increase/(Decrease)
Revenue		$   4,812,000	$          40.00		$    5,102,000	$                                         290,000
Cost of Goods sold:
Variable		$ -2,534,721	$         -21.07		$   -2,745,421	$                                       -210,700
Fixed		$     -960,000			$      -960,000	$                                                   -
Selling and Admin Expense
Variable		$     -249,021	$           -2.07		$      -269,721	$                                          -20,700
Shipping			$           -0.73	10,000*$0.73	$          -7,300	$                                            -7,300
Fixed		$     -243,000			$      -243,000	$                                                   -
Net Income		$      825,258			$       876,558	$                                           51,300
b. Should accept the order since income is increased by $51,300
c.
Variable Cost of goods sold		$          21.07
Variable Selling and Admin		$            2.07
Variable Shipping		$            0.73
Desired Income		$            5.19
Minimum Selling Price		$          29.06