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Problem 26-1A (Part Level Submission)

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(a) & (b)

Problem 26-1A (Part Level Submission)

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.
Amount Sales $4,776,000 Cost of goods sold 3,509,190 Selling and administrative expenses 513,516 Net income $753,294
Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $258,000.

In July, normally a slack manufacturing month, ThreePoint 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 expenses $0.73 per unit because of shipping costs but would not increase fixed costs and expenses.

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Explanation / Answer

a. Incremental analysis:

b. Yes, ThreePoint Sports Inc. should accept the special order.

Reject order Accept order Revenues $ 4,776,000 $ 5,046,000 Variable costs Manufacturing 2,549,190 2,762,690 Selling and administrative 255,516 284,216 Contribution margin 1,971,294 1,999,094 Incremental profit ( loss) 27,800

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