Wyco Company manufactures toasters. For the first 8 months of 2011, the company

Question

Wyco Company manufactures toasters. For the first 8 months of 2011, the company reported the following operating results while operating at 75% of plant capacity.

Sales (400,000 units) $4,000,000
Cost of goods sold

2,400,000
Gross profit 1,600,000
Operating expenses

900,000
Net income

$700,000

Cost of goods sold was 70% variable and 30% fixed. Operating expenses were also 60% variable and 40% fixed.

In September, Wyco Company receives a special order for 40,000 toasters at $6.00 each from Salono Company of Mexico City. Acceptance of the order would result in $8,000 of shipping costs but no increase in fixed operating expenses.

Complete the incremental analysis for the special order. (If an amount is blank enter 0, all boxes must be filled to be correct. If the impact on net income is a decrease use either a negative sign in front of the number, e.g. -45 or parenthesis, e.g. (45). Enter all other amounts as positive amounts and subtract where necessary. Round your answers to 0 decimal places, e.g. 5,210, round your computations of unit costs to 2 decimal places, e.g. 5.25.)

Reject Order Accept Order Net Income
Increase
(Decrease)
Revenues $ $ $
Cost of goods sold
Operating expense





Net income

$


$


$

Explanation / Answer

(2,400,000)(.7) = 1,680,000 = Cost of Goods sold (900,000)(.3) = 270,000 = operating expenses (1,680,000) / (400,000) = 4.2 = cost of goods sold per unit (270,000) / (400,000) = .675 = Operating expenses per unit (40,000)(6) = 240,000 = revenue (40,000)(4.2) = 168,000 = total cost of goods sold (40,000)(.675) = 27,000 = total cost of operating expenses shipping is 8,000 = 203,000 Net income = 240,000 - 203,000 = 37,000 They make a profit so they should accept the order

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