Wyco Company manufactures toasters. For the first 8 months of 2011, the company
ID: 2380517 • Letter: W
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 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
Prepare an incremental analysis for the special order.
Should Wyco Company accept the special order? Why or why not?
Explanation / Answer
Pender has prepared the following list of statements about decision making and incremental analysis. Identify each statement as true or false. 1. The first step in management's decision-making process is, "Determine and evaluate possible courses of action." 2. The final step in management's decision-making process is to actually make the decision. 3. Accounting's contribution to management's decision-making process occurs primarily in evaluating possible courses of action and in reviewing the results. 4. In making business decisions, management ordinarily considers only financial information because it is objectively determined. 5. Decisions involve a choice among alternative courses of action. 6. The process used to identify the financial data that change under alternative courses of action is called incremental analysis. 7. Costs that are the same under all alternative courses of action sometimes affect the decision. 8. When using incremental analysis, some costs will always change under alternative courses of action, but revenues will not. 9. Variable costs will change under alternative courses of action, but fixed costs will not. Pender has prepared the following list of statements about decision making and incremental analysis. Identify each statement as true or false. 1. The first step in management's decision-making process is, "Determine and evaluate possible courses of action." 2. The final step in management's decision-making process is to actually make the decision. 3. Accounting's contribution to management's decision-making process occurs primarily in evaluating possible courses of action and in reviewing the results. 4. In making business decisions, management ordinarily considers only financial information because it is objectively determined. 5. Decisions involve a choice among alternative courses of action. 6. The process used to identify the financial data that change under alternative courses of action is called incremental analysis. 7. Costs that are the same under all alternative courses of action sometimes affect the decision. 8. When using incremental analysis, some costs will always change under alternative courses of action, but revenues will not. For every false statement identified above indicate how to correct the statement. 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
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