ShurShot Sports Inc. manufactures basketballs for the National Basketball Associ

Question

ShurShot Sports Inc. manufactures basketballs for the National Basketball Association (NBA). For the first 6 months of 2014, the company reported the following operating results while operating at 80% of plant capacity and producing 120,000 units. Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $225,000. In July, normally a slack manufacturing month, ShurShot 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 $0.50 per unit because of shipping costs but would not increase fixed costs and expenses. Instructions Prepare an incremental analysis for the special order. Should ShurShot Sports Inc. accept the special order? Explain your answer. What is the minimum selling price on the special order to produce net income of $4.00 per ball? What nonfinancial factors should management consider in making its decision?

Explanation / Answer

d) Non financial factors to be considered:

a) Incremental analysis for the special order of 10000 basket balls: Incremental revenue (10000*27) 270000 Incremental costs: variable cost of goods sold @ 22 -220000 variable selling & admn exps -20000 -240000 (1.5+0.5 = $ 2.0) Incremental net income if order is accepted 30000 Calculations: variable cogs = (3600000-960000)/120000 = $22/unit variable selling and admn = (405000-225000)/120000 = $1.5/unit b) Yes, Shurshot should accept the offer as the firm has spare capacity and there would be incremental profit from the order. c) Minimum price to produce net income of $4 per unit = 22+2+4 = $28/unit (for the special order)

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

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