Question

Please complete all questions

Conklin Company manufactures outdoor fireplaces. For the first 9 months of 2017, the company reported the following operating results while operating at 80% of plant capacity:

Sales (75,000 units)                $6,750,000

                                    Cost of goods sold                  4,875,000

                                    Gross profit                             1,875,000

                                    Operating expenses                      750,000

                                    Net income                              $1,125,000

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

In October, Conklin Company receives a special order for 4,000 fireplaces at $62 each from Langston’s Landscape Company.   Acceptance of the order would result in an additional $7,000 of shipping costs but no increase in fixed operating expenses.

(a)        Prepare an incremental analysis for the special order.

(b)        Should Conklin Company accept the special order? Why or why not?

(c)        Before Conklin could give Langston’s Landscape Company an answer, they received a special order from Benson Building & Supply for 15,000 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 $67,500. The special design also requires the purchase of a part that costs $5,000 and will have no future use for Conklin Company. Benson Building & Supply will pick up the fireplaces, so no shipping costs are involved. Due to capacity limitations, Conklin cannot accept both special orders. Which order should be accepted? Document your decision by preparing an incremental analysis for Benson’s order.

Answer 1