Question

Moonbeam Company manufactures toasters. For the first 8 months of 2020, the company reported the following operating results while operating at 75% of plant capacity: Sales (350,000 units) $4,379,000 Cost of goods sold: 2,605,000 Gross profit 1,774,000 Operating expenses 839,600 Net income $934,400 Cost of goods sold was 72% variable and 28% fixed; operating expenses were 82% variable and 18% fixed. In September, Moonbeam receives a special order for 19,100 toasters at $7.99 each from Luna Company of Ciudad Juarez. Acceptance of the order would result in an additional $2,900 of shipping costs but no increase in fixed costs. (a) Prepare an incremental analysis for the special order. (b) Should Moonbeam accept the special order?

Answer 1

Moonbeam Company
Operating results for 1st 8 months of 2020
Particulars	Total in $	Per unit $
Sales in units	3,50,000
Sales amount	43,79,000	12.51
Less : Variable cost of goods sold	18,75,600	5.36
26,05,000*72%
Less : Variable operating expenses	6,88,472	1.97
8,39,600*82%
Contribution	18,14,928	5.19
Less : Fixed cost of goods sold	7,29,400
26,05,000*28%
Less : Fixed operating expenses	1,51,128
8,39,600*18%
Net income	9,34,400
Calculation of income from special order for toasters
Particulars	Total in $	Per unit $
Sales order in units	19,100
Sales amount	1,52,609	7.99
Less : Variable cost of goods sold	1,02,376	5.36
$5.36 per unit
Less : Variable operating expenses	37,627	1.97
$1.97 per unit
Contribution	12,606	0.66
Less : Shipping costs	2,900
Net income	9,706

Conclusion :-
Moonbeam Company should accept the special order as
it is earning a net income of $9,706 from the same.