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 (78,100 units) $7,107,100 Cost of goods sold 4,978,875 Gross profit 2,128,225 Operating expenses 781,000 Net income $1,347,225 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 4,000 fireplaces at $61 each from Langston’s Landscape Company. Acceptance of the order would result in an additional $6,400 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 15,500 fireplaces. Benson is willing to pay $65 per fireplace but they want a special design imbedded into the fireplace that increases cost of goods sold by $66,650. The special design also requires the purchase of a part that costs $5,300 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 Langston’s Landscape CompanyBenson Building and Supply .

Answer 1

Langston's Landscape Company

Incremental Analysis

	Reject	Accept	Increase(Decrease)
Revenue	0	244000	244000
Costs
Cost of Good Sold	442566.67	493566.67	51000
Operating Expense	60744.44	72744.44	12000
Shipping Expense	0	6400	6400
Net Income	-503311.11	-328711.11	174600

ConKlan Company should accept the order because if they accept the order than they will increase less loss by 174600.

Workings

Sales(61*4000)=244000

Cost of Good Sold For One Month (Fixed)=4978875*80%/9=442566.67

Cost of Good Sold (Variable)=4978875*20%=995775

Variable Cost of COGS per unit=995775/78100=12.75

Operating Expense For One Month(Fixed)=781000*70%/9=60744.44

Cost of Good Sold (Variable)=781000*30%=234300

Variable Cost of Operating Expense per unit=234000/78100=3

COGS

Fixed Cost = 442566.67

V.C.(12.75*4000)=51000

Total COGS=493566.67

Operating Expense

Fixed Cost =60744.44

V.C.(3*4000) =12000

Total Operating Expense=72744.44

Benson Order

Incremental Analysis

	Reject	Accept	Increase(Decrease)
Revenue	0	1007500	1007500
Costs
Cost of Good Sold	442566.67	619858.33	177291.66
Operating Expense	60744.44	107244.44	46500
Unique Part	0	5300	5300
Net Income	-503311.11	275097.23	778408.34

ConKlan Company should accept Benson order instead of  Langston's Landscape Company because Benson order is given Profit .

Workings

Sales=65*15500=1007500

COGS=4978875/9+66650=619858.33

Operating Expense

Fixed = 60744.44

Variable(3*15500)=46500

Total Operating Cost=107244.44