Pro Sports Inc. manufactures basketballs for the National Basketball Association

Question

Pro Sports Inc. manufactures basketballs for the National Basketball Association (NBA). For the first 6 months of 2008, the company reported the following operating results while operating at 90% of plant capacity and producing 112,500 units. Amount Sales $4,500.00 Cost of goods sold 3,600,000 Selling and administrative expenses 450,000 Net income 450,000
Fixed costs for the period were: cost of goods sold $1,080,000, and selling and administrative expenses $225,000.
In July, normally a slack manufacturing month. Pro Sports receives a special order for 10,000 basketballs at $28 each from the Italian Basketball Association (IBA). Acceptance of 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 $4,10 per ball?
d) What nonfinancial factors should management consider in making its decision?

Explanation / Answer

1 Cost of Goods Sold 3600000 Less : Fixed Cost of Goods Sold 1080000 Variable Cost of goods sold 2520000 Units Sold 112500 Unit Cost of Goods sold 22.4 Selling and Administrative Expenses 450000 Fixed Selling and Administrative Expenses 225000 Variable Selling and Administrative Expenses 225000 Units Sold 112500 S&A cost per Unit sold 2 Increase in Revenue if special order is accepted 280000 Cost for manufactring ( 22.4 +2 + 0.5 ) * 10,000 249000 Net Income 31000 2 Since the Net Income increase by $31000, the special order should be accepted. The Variable cost per unit of the special order is : 22.4 + 2 = 24.4 3 Hence , minimum SP would be : 24.4 + 4.10 = $28.5 4 The management should first consider if it has the capacity to accommodate the special order. Also the mangement should also explore whether the additional capacity (if available) can be put to much better use.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.