Exercise 20-3 Leno Company manufactures toasters. For the first 8 months of 2014
ID: 2462951 • Letter: E
Question
Exercise 20-3 Leno Company manufactures toasters. For the first 8 months of 2014, the company reported the following operating results while operating at 75% of plant capacity: Sales (350,600 units) Cost of goods sold Gross profit Operating expenses Net income $4,376,100 2,605,000 1,771,100 840,000 $931,100 Cost of goods sold was 67% variable and 33% fixed; operating expenses were 72% variable and 28% fixed In September, Leno Company receives a special order for 17,700 toasters at $8.3 each from Centro Company of Ciudad Juarez. Acceptance of the order would result in an additional $3,000 of shipping costs but no increase in fixed operating expenses. Your answer is partially correct. Try again Prepare an incremental analysis for the special order. (Round computations for per unit cost to 4 decimal places, e.g. 15.2500 and all other computations and final answers to the nearest whole dollar, e.g. 5,725. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Reject Order Accept Order Net Income Increase Decrease Revenues 1469101 220927 Cost of goods sold 88114 88114Explanation / Answer
Bifircation of fixed & variable expenses
Particulars
Amount
Variable
Fixed
COGS
2,605,000
1,745,350
859,650
Operating Exp
840,000
604,800
235,200
3,445,000
2,350,150
1,094,850
No of units
350,600
Cost per unit
$6.70
Accept Order
Revenue = Exiting Revenue + Special order revenue
= $ 4,376,100 +(8.3 x 17.700)
= $ 4,376,100 + 146,910
= $ 4,523,010
Cost of goods sold = Variable COGS + fixed cost
=1,745,350/350,600 x (350,600 + 17,700) + [859,650 + 3,000]
= 1,745,350/350,600 x 368,300 + 862,650
= 1,833,464 +862,650
= $ 2,696,114
Operating Expenses = Variable operating exp + Fixed operating expenses
= [604,800/350,600 x ( 350,600 + 17,700)] +235,200
=604,800/350,600 x 368,300 + 235,200
= 635,333 + 235,200
=$870,533
Reject Order
Accept Order
Net Income
Increase
(Decrease)
Revenue
4,376,100
4,523,010
146,910
Cost of goods gold
2,605,000
2,696,114
91,114
Gross profit
1,771,100
1,826,896
55,796
Operating expenses
840,000
870,533
30,533
Net Income
931,100
956,363
25,263
As there is increase in profit accept order
Bifircation of fixed & variable expenses
Particulars
Amount
Variable
Fixed
COGS
2,605,000
1,745,350
859,650
Operating Exp
840,000
604,800
235,200
3,445,000
2,350,150
1,094,850
No of units
350,600
Cost per unit
$6.70
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