Answer:
(a) Prepare an incremental analysis for the special order.
Sales ( 600 mats × $45 each) $ 27,000
Cost of Goods Sold ( 600 mats × $31.50)($ 18,900)
Gross Profit $ 8,100
Operating Costs ( 600 mats × $14.00) ($ 8,400)
Shipping Costs ($1,200)
Net Income ($1,500)
(b) Should Gregg company accept the special order?
No
Because the Order presents a financial disadvantage of $1,500.
Explanation:
Hint: Consider only the Incremental Costs and Revenues that relate to the 600 mat production
<u>Cost of Goods Sold</u>
Variable Cost per mat = ($4,200,000 × 75%) / 100,000
= ($ 3,150,000)/ 100,000
= $31.50
<u>Operating Costs</u>
Variable Cost per mat = ($2,000,000 × 70%) / 100,000
= $14.00
