Question

Three Point Sports Inc. manufactures basketballs for the Women's National Basketball Association (WNBA). In July, they receive a special order for 10,000 basketballs at $28 each from the Greek Basketball Association (GBA). Acceptance of the order would increase variable selling and administrative expenses by $0.77 per unit due to shipping costs but would not increase fixed costs and expenses. Prepare an incremental analysis for the special order.

a) $229,500
b) $223,000
c) $215,500
d) $207,000

Answer 1

The incremental profit from the special order is calculated by subtracting the additional variable costs from the additional revenues, resulting in a figure of $272,300, which does not match the provided options.

Step-by-step explanation:

To prepare an incremental analysis for the special order from the Greek Basketball Association (GBA), we need to consider the additional revenues and the additional costs associated with the order. The special order is for 10,000 basketballs at $28 each. Therefore, the total additional revenue from this order is:

• 10,000 basketballs x $28/basketball = $280,000

The additional variable selling and administrative expenses are $0.77 per unit for shipping costs. So, the total additional variable costs are:

• 10,000 basketballs x $0.77/basketball = $7,700

We then subtract the additional costs from the additional revenues to determine the incremental profit from accepting the special order:

• $280,000 - $7,700 = $272,300

Since the problem does not mention any incremental changes in fixed costs and expenses, the incremental profit of $272,300 represents the additional net benefit of accepting the special order. However, since this figure does not match any of the options provided, we should double-check our calculations or seek clarification.