Question

In: Accounting

Pro Sports Inc. manufactures basketballs for professional basketball associations. For the first six months of 2016,...

Pro Sports Inc. manufactures basketballs for professional basketball associations. For the first six months of 2016, the company reported the following operating results while operating at 90% of plant capacity:

Amount Sales $4,500.00 at $50.00 per unit

Cost of goods sold 3,150,000 at $35.00 per unit

Selling and administrative expenses 360,000 at $4.00 per unit

Net income 990,000 at $11.00 per unit


Fixed costs for the period were: cost of goods sold $900,000, and selling and administrative expenses $162,000.
In July, normally a slack manufacturing month, Pro Sports receives a special order for 9,000 basketballs at $30 each from the Italian Basketball Association. Accepting the order would increase variable selling and adminstrative expenses $0.50 per unit because of shipping costs but would not increase fixed costs and expenses.


Instructions:
a) Prepare an incremental analysis for the special order.
b) Should Pro Sports Inc. accept the special order? Explain your anser.
c) What is the minimum selling price on the special order to produce net income of $5.00 per ball?
d) What nonfinancial factors should management consider in making its decision?

Solutions

Expert Solution

a)

Units produced = 4,500,000/ 50 = 90000 units
Particulars Total Fixed Variable VC / unit
(Cost / 90000)
Cost of goods sold       3,150,000        900,000        2,250,000                     25.00
Selling and admin          360,000        162,000            198,000                       2.20
Incremental cost / unit = Variable COGS / unit + Selling and admin / unit = 25 + 2.2 + 0.5 = 27.7

b) Yes, Pro sports should accept the offer, as incremental cost is $27.7 whereas revenue will be $30 each unit. This will lead to $2.3 of extra contribution.

c) The minimum selling price to produce a net income of $ 5 = Inc cost + $5 = 27.7 + 5 = 32.7

d) The management needs to consider the production capacity, payment terms with the customer, credibility of the customer, etc.


Related Solutions

Pro Sports Inc. manufactures basketballs for professional basketball associations. For the first six months of 2020,...
Pro Sports Inc. manufactures basketballs for professional basketball associations. For the first six months of 2020, the company reported the following operating results while operating at 90% of plant capacity: Amount Per Unit Sales $5,616,000 $52.00 Cost of goods sold 3,672,000 34.00 Selling and administrative expenses 486,000 4.50 Net income $1,458,000 $13.50 Fixed costs for the period were cost of goods sold of $1,080,000, and selling and administrative expenses of $194,400. In July, normally a slack manufacturing month, Pro Sports...
Pro Sports Inc. manufactures basketballs for professional basketball associations. For the first six months of 2020,...
Pro Sports Inc. manufactures basketballs for professional basketball associations. For the first six months of 2020, the company reported the following operating results while operating at 90% of plant capacity: Amount Per Unit Sales $5,232,600 $51.00 Cost of goods sold 3,591,000 35.00 Selling and administrative expenses 451,440 4.40 Net income $1,190,160 $11.60 Fixed costs for the period were cost of goods sold of $1,026,000, and selling and administrative expenses of $184,680. In July, normally a slack manufacturing month, Pro Sports...
ThreePoint Sports Inc. manufactures basketballs for the Women’s National Basketball Association (WNBA). For the first 6...
ThreePoint Sports Inc. manufactures basketballs for the Women’s National Basketball Association (WNBA). For the first 6 months of 2020, the company reported the following operating results while operating at 80% of plant capacity and producing 118,800 units. Amount Sales $4,514,400 Cost of goods sold 3,560,532 Selling and administrative expenses 468,164 Net income $485,704 Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $227,000. In July, normally a slack manufacturing month, ThreePoint Sports receives...
ThreePoint Sports Inc. manufactures basketballs for the Women’s National Basketball Association (WNBA). For the first 6...
ThreePoint Sports Inc. manufactures basketballs for the Women’s National Basketball Association (WNBA). For the first 6 months of 2020, the company reported the following operating results while operating at 80% of plant capacity and producing 120,300 units. Amount Sales $4,571,400 Cost of goods sold 3,713,667 Selling and administrative expenses 534,893 Net income $322,840 Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $257,000. In July, normally a slack manufacturing month, ThreePoint Sports receives...
Bramble Sports Inc. manufactures basketballs for the Women’s National Basketball Association (WNBA). For the first 6...
Bramble Sports Inc. manufactures basketballs for the Women’s National Basketball Association (WNBA). For the first 6 months of 2017, the company reported the following operating results while operating at 80% of plant capacity and producing 119,700 units. Amount Sales $4,788,000 Cost of goods sold 3,559,884 Selling and administrative expenses 468,445 Net income $759,671 Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $247,000. In July, normally a slack manufacturing month, Bramble Sports receives...
ThreePoint Sports Inc. manufactures basketballs for the Women’s National Basketball Association (WNBA). For the first 6...
ThreePoint Sports Inc. manufactures basketballs for the Women’s National Basketball Association (WNBA). For the first 6 months of 2020, the company reported the following operating results while operating at 80% of plant capacity and producing 119,700 units. Amount Sales $4,788,000 Cost of goods sold 3,559,884 Selling and administrative expenses 468,445 Net income $759,671 Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $247,000. In July, normally a slack manufacturing month, ThreePoint Sports receives...
PinaColada Sports Inc. manufactures basketballs for the Women’s National Basketball Association (WNBA). For the first 6...
PinaColada Sports Inc. manufactures basketballs for the Women’s National Basketball Association (WNBA). For the first 6 months of 2020, the company reported the following operating results while operating at 80% of plant capacity and producing 120,300 units. Amount Sales $4,571,400 Cost of goods sold 3,713,667 Selling and administrative expenses 534,893 Net income $322,840 Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $257,000. In July, normally a slack manufacturing month, PinaColada Sports receives...
Problem 20-1A (Part Level Submission) ThreePoint Sports Inc. manufactures basketballs for the Women’s National Basketball Association...
Problem 20-1A (Part Level Submission) ThreePoint Sports Inc. manufactures basketballs for the Women’s National Basketball Association (WNBA). For the first 6 months of 2017, the company reported the following operating results while operating at 80% of plant capacity and producing 119,900 units. Amount Sales $4,676,100 Cost of goods sold 3,527,059 Selling and administrative expenses 482,601 Net income $666,440 Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $244,000. In July, normally a slack...
Speedy Sports manufactures basketballs that sell for $ 25. At present, the ball is manufactured in...
Speedy Sports manufactures basketballs that sell for $ 25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Therefore, variable costs are high, totaling $ 15 per ball, of which 60% is direct labor cost. Fixed costs are $ 210,000. Last year, the firm sold 30,000 balls. Compute (1) the CM ratio and the breakeven point in units and (2) the degree of operating leverage. Due to an increase in labor rates,...
The National Basketball League is a professional sports league in North America. Each team in the...
The National Basketball League is a professional sports league in North America. Each team in the league must participate the revenue sharing system. For the purposes of the revenue sharing plan, there are no limits to the amount each team may contribute to the plan. Each team is subject to a receipt limits based their designated market area (DMA). For teams with a DMA between 1.5-2.249 households, the final receipt limit is set at 75% of the initial receipt; for...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT