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: Sales (350,000 units) $4,375,000 Cost of goods sold 2,600,000 Gross profit 1,775,000 Operating expenses 840,000 Net income $935,000 Cost of goods sold was 70% variable and 30% fixed; operating expenses were 80% variable and 20% fixed. In September, Moonbeam receives a special order for 15,000 toasters at $7.60 each from Luna Company of Ciudad Juarez. Acceptance of the order would result in an additional $3,000 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. If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Reject Order Accept Order Net Income Increase (Decrease) Revenues $ $ $ Cost of goods sold Operating expenses Net income $ $ $ (b) Should Moonbeam accept the special order

Answer 1

Answer:

The order should be accepted as it will icnrease contribution by 2,700 dollars

Sales revenue            112,500

variable cost             (106,800)

additional fixed cost    (3,000)

contribution                  2,700

Explanation:

We have to calculate the variable cost to compare against the offer sales price:

COGS

2,600,000 x 70% =   1,820,000

Operating expense

840,000 x 80% =          672,000

total variable               2,492,000

variable per unit:  

2,492,000   /    350,000  = 7.12

we now calculate the contribution of the order and subtract the additional cost:

15,000 units x (7.50 - 7.12) -3,000 additional shipping

contribution 2,700