Question

Exercise 20-3 Your answer is partially correct. Try again. Moonbeam Company manufactures toasters. For the first 8 months of 2017, the company reported the following operating results while operating at 75% of plant capacity: Sales (349,200 units) $4,375,000 Cost of goods sold 2,595,000 Gross profit 1,780,000 Operating expenses 839,300 Net income $940,700 Cost of goods sold was 77% variable and 23% fixed; operating expenses were 87% variable and 13% fixed. In September, Moonbeam Company receives a special order for 18,500 toasters at $8.03 each from Luna Company of Ciudad Juarez. Acceptance of the order would result in an additional $3,000 of shipping costs but no increase in fixed costs. (a) Prepare an incremental analysis for the special order. (Round computations for per unit cost to 4 decimal places, e.g. 15.2500 and all other computations and final answers to the nearest whole dollar, e.g. 5,725. 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 Operating expenses Net income $ $ $

Answer 1

Variable cost per unit =[ Variable cost of goods sold + variable operating expenses]/units

                                            = [(2595,000*0.77)+(839300*0.87)]   / 349200

                                                = $ 7.81

	Reject order	Accept order	Net income increase (decrease)
Revenues (18500*8.03)	0	148,555	148,555
Cost of manufacturing at 7.81	0	144,485	(144,485)
Cost of shipping	0	3000	(3000)
Net income	0	1070	1070

Moonbeam should accept the special order because the net income will increase by $1070