This problem consists of two independent mini-problems. A. Zane Wheels produces

Question

This problem consists of two independent mini-problems. A. Zane Wheels produces lawn mower tires in batches of 1,200 at a cost of $2.40 each. The tires can be sold without further processing for $5.00 per tire, or can be processed further by injecting solid foam which insures the tires will never become flat. The solid foam tires can be sold for $11.00 each. The additional processing costs total $6,600 per batch. Instructions Compute the incremental income from further production of one batch of solid foam tires. Lansing Manufacturers produces can openers. For the first six months of 2017, the company reported the following operating results for 16,000 units, while operating at 80% of plant capacity B. Sales Cost of goods sold Gross profit Operating expenses Net income $2,000,000 800,000 Cost of goods sold was 75% variable and 25% fixed. Operating expenses were 60% variable and 40% fixed. In July of 2017, Lansing receives a special order for 2,000 can openers at $85 each from a foreign company. The can openers normally sell for $112.00. Acceptance of the special order would result in $1,000 of shipping costs but no increase in fixed operating expenses. Instructions Prepare an incremental analysis for the special order.

Explanation / Answer

A. Answer : Incremental Income : $ 600

Incremental income from further processing a batch of tyres into solid foam tyres = Incremental Revenues - Incremental Processing Costs = 1,200 x $ ( 11.00 - 5.00) - $ 6,600 = $ 600

B. Acceptance of the special order results in an increase of net operating income by $ 25,000 for the next six months of the year.

Incremental Analysis for Special Order :

Reject Special Order Accept Special Order Increase ( Decrease ) in Operating Income $ $ $ Sales 2,000,000 2,170,000 170,000 Less: Variable Cost of Goods Sold 900,000 1,012,500 (112,500) Variable Operating Expenses 252,000 283,500 (31,500) Contribution Margin 848,000 874,000 26,000 Fixed Cost of Goods Sold 300,000 300,000 0 Fixed Operating Expenses 168,000 168,000 0 Shipping Costs 0 1,000 (1,000) Net Operating Income 380,000 405,000 25,000

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

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