Question

Current Designs faces a number of important decisions that require incremental analysis.

Recently, Mike Cichanowski, owner and CEO of Current Designs, received a phone call from the president of a brewing company. He was calling to inquire about the possibility of Current Designs producing “floating coolers” for a promotion his company was planning. These coolers resemble a kayak but are about one-third the size. They are used to float food and beverages while paddling down the river on a weekend leisure trip. The company would be interested in purchasing 100 coolers for the upcoming summer. It is willing to pay $250 per cooler. The brewing company would pick up the coolers upon completion of the order.

Mike met with Diane Buswell, controller, to identify how much it would cost Current Designs to produce the coolers. After careful analysis, the following costs were identified.

Direct materials
$77/unitVariable overhead
$23/unit

Direct labor
$61/unitFixed overhead
$1,000

Current Designs would be able to modify an existing mold to produce the coolers. The cost of these modifications would be approximately $2,000.

(a)

Prepare an incremental analysis to determine whether Current Designs should accept this special order to produce the coolers. (Enter decrease in net income then enter with a negative sign preceding the number or parenthesis, e.g. -15,000 or (15,000).)

Reject OrderAccept OrderNet Income
Increase (Decrease)

Revenues$ $ $

Costs

Net Income$ $ $

Current Designs should                                                           accept or reject the order based on the incremental analysis.

Answer 1

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Current Designs	Amount $
Number of units	100.00
Sell price	250.00
Sales value	25,000.00
Direct materials	77.00
Variable overhead	23.00
Direct labor	61.00
Variable cost per unit	161.00
Total Variable cost	16,100.00
Add: Fixed overhead (assuming its incremental)	1,000.00
Cost of modification of mold	2,000.00
Total cost	19,100.00
Answer a	Amount $
Revenues	25,000.00
Costs	19,100.00
Net Income	5,900.00
Increased.
Current Designs should accept the order based on the incremental analysis.