ShurShot Sports Inc. manufactures basketballs for the National Basketball Associ

Question

ShurShot Sports Inc. manufactures basketballs for the National Basketball Association (NBA). For the first 6 months of 2014, the company reported the following operating results while operating at 90% of plant capacity and producing 157,410 units.

Amount Sales revenue $7,713,090 Cost of goods sold 4,514,892 Selling and administrative expenses 474,582 Net income $2,723,616
Fixed costs for the period were cost of goods sold $959,000, and selling and administrative expenses $224,300.

In July, normally a slack manufacturing month, ShurShot Sports receives a special order for 12,800 basketballs at $28 each from the Greek Basketball Association (GBA). Acceptance of the order would increase variable selling and administrative expenses $0.37 per unit because of shipping costs but would not increase fixed costs and expenses.
ShurShot Sports Inc. manufactures basketballs for the National Basketball Association (NBA). For the first 6 months of 2014, the company reported the following operating results while operating at 90% of plant capacity and producing 157,410 units.

Amount Sales revenue $7,713,090 Cost of goods sold 4,514,892 Selling and administrative expenses 474,582 Net income $2,723,616
Fixed costs for the period were cost of goods sold $959,000, and selling and administrative expenses $224,300.

In July, normally a slack manufacturing month, ShurShot Sports receives a special order for 12,800 basketballs at $28 each from the Greek Basketball Association (GBA). Acceptance of the order would increase variable selling and administrative expenses $0.37 per unit because of shipping costs but would not increase fixed costs and expenses.

Reject
Order
Accept
Order Net Income
Increase
(Decrease) Link to Text Link to Text Link to Text Link to Text Link to Text Link to Text Problem 26-1A ShurShot Sports Inc. manufactures basketballs for the National Basketball Association (NBA). For the first 6 months of 2014, the company reported the following operating results while operating at 90% of plant capacity and producing 157,410 units.

Amount Sales revenue $7,713,090 Cost of goods sold 4,514,892 Selling and administrative expenses 474,582 Net income $2,723,616
Fixed costs for the period were cost of goods sold $959,000, and selling and administrative expenses $224,300.

In July, normally a slack manufacturing month, ShurShot Sports receives a special order for 12,800 basketballs at $28 each from the Greek Basketball Association (GBA). Acceptance of the order would increase variable selling and administrative expenses $0.37 per unit because of shipping costs but would not increase fixed costs and expenses.
Prepare an incremental analysis for the special order.


Reject
Order
Accept
Order Net Income
Increase
(Decrease) Revenues $ $ $ Cost of goods sold Selling and administrative expenses Net income $ $ $
Link to Text Should ShurShot Sports Inc. accept the special order?


Link to Text What is the minimum selling price on the special order to produce net income of $6.66 per ball? (Round answer to 2 decimal places, e.g. 15.25.)

Minimum selling price $ per unit




ShurShot Sports Inc. manufactures basketballs for the National Basketball Association (NBA). For the first 6 months of 2014, the company reported the following operating results while operating at 90% of plant capacity and producing 157,410 units. Fixed costs for the period were cost of goods sold $959,000, and selling and administrative expenses $224,300. n July, normally a slack manufacturing month, ShurShot Sports receives a special order for 12,800 basketballs at $28 each from the Greek Basketball Association (GBA). Acceptance of the order would increase variable selling and administrative expenses $0.37 per unit because of shipping costs but would not increase fixed costs and expenses.

Explanation / Answer

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Q.

Shurshot sports Inc. manufactures basketballs for the National Basketball Association (NBA). For the first 6 months of 2014, the company reported the following operating results while operating at 80% of plant capacity and producing 120,000 units.

Sales $4,800,000
Cost of goods sold $3,600,000
Selling and administrative expenses 405,000
Net income $795,000

Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $225,000.
In July, normally a slack manufacturing onto, Shurshot Sports receives a special order for 10,000 basketballs at $27 each from the greek Basketball association (GBA). Acceptance of the order would increase variable selling and administrative expense $0.50n per unit because of shipping costs but would not increase fixed costs and expenses.
A) Prepare an incremental analysis for the special order.
b) Should Shurshot Sports Inc. accept the special order? Explain your answer.
C) What is the minimum selling price on the special order to produce net income of $4.00 per ball?
D) what non financial factors should management consider in making its decision?

Ans

Cost of goods sold ($3,600,000 - 960,000) / 120,000 = $22 variable cost per unit
Selling and administrative expenses (405,000 - 225,000) / 120,000 = $1.50 variable cost per unit

A) Prepare an incremental analysis for the special order.
270,000 (10,000 x $27) incremental sales
Less:
220,000 (10,000 x $22) incremental COGS
20,000 [(1.50 + 0.50) x 10,000) incremental selling and administrative expense
$30,000 incremental net income

b) Should Shurshot Sports Inc. accept the special order? Explain your answer.
Yes. It would increase total net income by $30,000.

C) What is the minimum selling price on the special order to produce net income of $4.00 per ball?
$4.00 x 10,000 = $40,000 net income needed
Total Sales - 220,000 - 20,000 = 40,000
Total Sales = $280,000
280,000 / 10,000 = $28.000 minimum selling price

D) what non financial factors should management consider in making its decision?
The main problem is that other buyers (current or potential) may find out about the special price and want it for themselves.

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