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 (349,200 units) $4,375,000 Cost of goods sold 2,595,000 Gross profit 1,780,000 Operating expenses 839,300 Net income $940,700 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 18,500 toasters at $8.03 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.

Answer 1

Answer:

Net income from special order     $1,012.30

Explanation:

The amount net income from the special order is the difference between the revenue and the relevant cost of variable cost of the special order and any additional fixed cost

The relevant cash flow for the special order are :

I. the incremental contribution from of producing 18, 500 toasters

2. The incremental fixed cost shipping cost of $3,000

3 . Sales revenue

Variable cost of goods sold = 77%× 2,595,000=1,99,8150

Variable operating expenses = 23% × 839,300 =  730,191

           Total variable cost                                       2,728,341

Incremental contribution :

Sales revenue -  (18,500 ×  $8.03 )           148,555          

Variable cost of order:

(18500/349,200× 2728341)                    (144,542.69)

Shipping cost                                                 ( 3,000)

Net income from special order                     1,012.30

Note that every other fixed costs would be irrelevant because they would be incurred either way