Question

Moonbeam Company manufactures toasters. For the first 8 months of 2020, the company reported the following operating results while operating at 75% of plant capacity:

Sales (341,600 units)		$4,370,000
Cost of goods sold		2,591,280
Gross profit		1,778,720
Operating expenses		836,920
Net income		$941,800

Cost of goods sold was 70% variable and 30% fixed; operating expenses were 80% variable and 20% fixed.

In September, Moonbeam receives a special order for 15,000 toasters at $7.50 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.

Answer 1

Solution

The offer should be accepted as it gives additional net income of $550

Working

Calculation of Additional Cost of Order
	Per Unit	Total
Variable cost of goods sold	$                      5.31	$ 79,650
Variable operating expense	$                      1.96	$ 29,400
Additional fixed cost		$ 2,900
Total Additional cost due to acceptance of order	$                      7.27	$ 111,950

.

financial advantage (disadvantage) of accepting the special order
Additional Revenue from offer (15000 x $7.50)	$ 112,500
Less: Total Additional cost due to acceptance of offer	$ 111,950
Financial Advantage	$ 550

.

	Total per unit	Fixed per unit	Variable per unit
Cost of goods sold	$            7.59	$                2.28	$           5.31
Operating expenses	$            2.45	$                0.49	$           1.96