Question

Challenge Exercise 7-1 Conklan Company manufactures outdoor fireplaces. For the first 9 months of 2020, the company reported the following operating results while operating at 80% of plant capacity: Sales (68,300 units) $6,283,600 Cost of goods sold 4,354,125 Gross profit 1,929,475 Operating expenses 683,000 Net income $1,246,475 Cost of goods sold was 80% variable and 20% fixed; operating expenses were 70% variable and 30% fixed. In October, Conklan Company receives a special order for 3,600 fireplaces at $61 each from Langston’s Landscape Company. Acceptance of the order would result in an additional $6,700 of shipping costs but no increase in fixed operating expenses.

Prepare an incremental analysis for the special order. (Enter loss using either a negative sign preceding the number e.g. -2,945 or parentheses e.g. (2,945).) Reject order Accept order Net Income Increase (Decrease) Revenues $ $ $ Costs    Cost of Goods Sold    Operating Expenses    Shipping Expenses Net Income $ $ $

Should Conklan Company accept the special order? Why or why not? YesNo , its income is higherlowersame with this order.

Before Conklan could give Langston’s Landscape Company an answer, they received a special order from Benson Building & Supply for 15,400 fireplaces. Benson is willing to pay $64 per fireplace but they want a special design imbedded into the fireplace that increases cost of goods sold by $67,760. The special design also requires the purchase of a part that costs $4,700 and will have no future use for Conklan Company. Benson Building & Supply will pick up the fireplaces so no shipping costs are involved. Due to capacity limitations, Conklan cannot accept both special orders. Which order should be accepted? Document your decision by preparing an incremental analysis for Benson’s order. (Enter loss using either a negative sign preceding the number e.g. -2,945 or parentheses e.g. (2,945).) Reject order Accept order Net Income Increase (Decrease) Revenues $ $ $ Costs    Cost of Goods Sold    Operating Expenses    Unique part Net Income $ $ $ Conklan should accept the order from Benson Building and SupplyLangston’s Landscape Company .

Answer 1

Workings :

Formula Sheet :

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