Moonbeam Company manufactures toasters. For the first 8 months of 2017, the comp

Question

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 65% variable and 35% fixed; operating expenses were 75% variable and 25% fixed.

In September, Moonbeam Company receives a special order for 15,000 toasters at $7.50 each from Luna Company of Ciudad Juarez. Acceptance of the order would result in an additional $2,900 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?

the special order.

Sales (349,000 units) $4,370,000 Cost of goods sold 2,590,000 Gross profit 1,780,000 Operating expenses 839,000 Net income $941,000

Explanation / Answer

Incremental analysis :

Moonbeam Company should accept the special order

Reject order Accept order Net Income
Increase
(Decrease) Revenue 0 15000*7.5 = 112500 112500 Cost of goods sold 0 (2590000*65%/349000)*15000 = -72356.73 -72356.73 Operating expense 0 (839000*75%/349000*15000)+2900 = -29945.13 -29945.13 Net income 0 10198 10198

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