In: Accounting
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 119,700
units.
Amount | |||
Sales | $4,788,000 | ||
Cost of goods sold | 3,559,884 | ||
Selling and administrative expenses | 468,445 | ||
Net income | $759,671 |
Fixed costs for the period were cost of goods sold $960,000, and
selling and administrative expenses $247,000.
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 $0.75
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?
No OR Yes
What is the minimum selling price on the special order to produce net income of $5.09 per ball? (Round answer to 2 decimal places, e.g. 15.25.)
Minimum selling price | $ |
a.
Reject order | Accept order | Net income increase(decrease) | |
Revenues | $ - | $ 2,90,000 | $ 2,90,000 |
Cost of goods sold | $ - | $ -2,17,200 | $ -2,17,200 |
Selling and administrative expenses | $ - | $ -26,000 | $ -26,000 |
Net income | $ - | $ 46,800 | $ 46,800 |
Calculation: | |||
Per unit variable cost of goods sold | $ 21.72 | =(3559884- 960000)/119700 | |
Per unit variable Selling and administrative expense | $ 1.85 | =(468445- 247000)/119700 | |
Per unit shipping cost | $ 0.75 | ||
In total: | |||
Cost of goods sold | $ 2,17,200 | =(21.72*10000) | |
Selling and administrative expenses | $ 26,000 | =10000*(1.85+ 0.75) |
b. Yes , Threeint Sports should accept the order as there is increase in income.
c. Profit per unit on special order=$46,800/10000
=$4.68 per unit
minimum selling price on the special order to produce net income
of $5.09 per ball:
=$5.09 - $4.68 = $0.41
$29 + $0.41 = $29.41 per unit
Minimum selling price on the special order=$29.41 per unit