Question

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 (349,100 units) $4,377,000 Cost of goods sold 2,594,000 Gross profit 1,783,000 Operating expenses 839,400 Net income $943,600 Cost of goods sold was 67% variable and 33% fixed; operating expenses were 77% variable and 23% fixed. In September, Moonbeam Company receives a special order for 24,500 toasters at $8.38 each from Luna Company of Ciudad Juarez. Acceptance of the order would result in an additional $2,900 of shipping costs but no increase in fixed costs. (a) Prepare an incremental analysis for the special order.

Answer 1

	Total units at 75% capacity			349100	Incremental units	24500
			Total	Per unit
				(Total cost / units)
	Sales		43,77,000	12.54	(24500 x 8.38)	205310
	(75% Plant capacity)
Less:	Cost of goods sold
	25,94,000
	Variable (67%)	17,37,980		4.98	(24500 x 4.98)	1,21,972.24
	Fixed (33%)	8,56,020	25,94,000
	Gross profit		17,83,000			83,337.76
Less:	Operating expenses
	8,39,400
	Variable (77%)	6,46,338		1.85	(24500 x 1.85)	45,360.30
	Fixed (23%)	1,93,062
			8,39,400
	Net Income		9,43,600	2.70		37,977.46
Less:	Additional shipping costs					2900
	Profit on accepting order					35,077.46
Note:
1	Fixed costs does not vary with production upto 100 % Plant capacity
2	Only variable costs change with the production