Exercise 20-3 Moonbeam Company manufactures toasters. For the first 8 months of
ID: 2514934 • Letter: E
Question
Exercise 20-3
Moonbeam Company manufactures toasters. For the first 8 months of 2017, the company reported the following operating results while operating at 75% of plant capacity:
Cost of goods sold was 77% variable and 23% fixed; operating expenses were 87% variable and 13% fixed.
In September, Moonbeam Company receives a special order for 24,400 toasters at $8.38 each from Luna Company of Ciudad Juarez. Acceptance of the order would result in an additional $3,100 of shipping costs but no increase in fixed costs.
(a)
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).)
(b)
Should Moonbeam Company accept the special order?
Explanation / Answer
Answer
Cost of Goods Sold
$2602000
variable 77%
$2003540
Units
349300
Variable cost per unit
$5.7359
Special order unit
24400
Total variable cost for special order
$139955.96
Total Relevant cost of Goods Sold
$139,955.96
Operating expense
$839500
Variable 87%
$730365
Units
349300
Variable cost per unit
$2.0909
Special order unit
24400
Total variable cost for special order
$51017.96
Additional Fixed Cost-Shipping
$3100
Total Relevant Operating expenses for Order
$54,117.96
Reject
Accept
Net Income
Order
Order
Increase
(Decrease)
Revenues
$ 43,70,000.00
$ 45,74,472.00
$ 2,04,472.00
Cost of goods sold
$ 26,02,000.00
$ 27,41,955.96
$ (1,39,955.96)
Operating expenses
$ 8,39,500.00
$ 8,93,617.96
$ (54,117.96)
Net income
$ 9,28,500.00
$ 9,38,898.08
$ 10,398.08
MoonBeam Company SHOULD ACCEPT the special order as the Net Income is increasing by $10398.08
Cost of Goods Sold
$2602000
variable 77%
$2003540
Units
349300
Variable cost per unit
$5.7359
Special order unit
24400
Total variable cost for special order
$139955.96
Total Relevant cost of Goods Sold
$139,955.96
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