ThreePoint Sports Inc. manufactures basketballs for the Women\'s National Basket

Question

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 120,100 units. Fixed costs for the period were cost of goods sold S 960,000 , and selling and administrative expenses S 241,000. 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. 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).) Should ThreePoint Sports Inc. accept the special order?

Explanation / Answer

Note : You have used Total Approach instead of incremental approach

If We would accept order

Sale increase by = 28*10000 = 280000

Cost of Good Sold increases by =(3484502-960000)/120100*10000 = 210200

Selling and Administrative Expenses increases by =(448773-241000)/120100*10000 + 10000*0.77 = 25000

Net Income increase by = 280000-210200-25000 = 44800

Reject Order Accept Order Net Income Increase (Decrease) Revenues 0 280000 280000 Cost of Good Sold 0 210200 -210200 Selling and Administrative Expenses 0 25000 -25000 Net Income 0 44800 44800

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