Problem 21-1A ThreePoint Sports Inc. manufactures basketballs for the Women’s Na

Question

Problem 21-1A ThreePoint Sports Inc. manufactures basketballs for the Women’s National Basketball Association (WNBA). For the first 6 months of 2017, the company reported the following operating results while operating at 80% of plant capacity and producing 119,400 units.

Sales $ 4,656,600

Cost of goods sold 3,684,708

Selling and administrative expenses 526,292

Net income $ 445,600

Fixed costs for the period were cost of goods sold $ 960,000 , and selling and administrative expenses $ 266,000 .

In July, normally a slack manufacturing month, ThreePoint Sports receives a special order for 10,000 basketballs at $ 28 each from the Greek Basketball Association (GBA). Acceptance of the order would increase variable selling and administrative expenses $ 0.77 per unit because of shipping costs but would not increase fixed costs and expenses.

(a) Prepare an incremental analysis for the special order. (Round all per unit computations to 2 decimal places, e.g. 15.25. 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 $ $ $

Cost of goods sold

Selling and administrative expenses

Net income $ $ $

(b) Should ThreePoint Sports Inc. accept the special order?

What is the minimum selling price on the special order to produce net income of $5.16 per ball? (Round answer to 2 decimal places, e.g. 15.25.)

Minimum selling price $

Explanation / Answer

Solution:

Calculation of Variable Cost per unit of Cost of Goods Sold and Selling and Administrative Expenses:

Cost of goods sold = (3,684,708 - 960,000)/ 119,400 = 22.82 Variable Cost per unit

Selling and administrative expenses = (526,292 - 266,000)/ 119,400 = 2.18 Variable Cost per unit

a) Incremental analysis for the special order:

b) Should ThreePoint Sports Inc. accept the special order?

Yes. It would increase total net income by 22,300

c) What is the minimum selling price on the special order to produce net income of $5.16 per ball?

Net Income needed = 10,000 * 5.16 = 51,600

Total Sales - 228,200 - 29,500 = 51,600

Total Sales = 228,200 + 29,500 + 51,600

= 309,300

Minimum Selling Price = 309,300/10,000 = 30.93 per unit

Incremental Sales (10,000 * 28)    280,000 Incremental Cost of goods sold (10,000 * 22.82)    228,200 Incremental Selling and administrative expenses [10,000 * (2.18+0.77)]      29,500 Incremental Net income      22,300

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