Question

Moonbeam company manufactures toasters. For the first 8 monthsof 2017 the company reported the following operating results whileoperating at 75% of plant capacity

sales (350,000 units) 4375000
cogs 2600000
gross profit 1775000
operating expense 840000
net income 935000
cost of goods sold was 70% variable and 30% fixed. operatingexpenses were 80% variable and 20% fixed.moonbeam receives aspecial order for 15000 toasters at 7.60 each from Luna Company.Acceptance of the order would result in an additional 3000 ofshipping cost but no increase in fiaxed assets
a) prepare an incremental analysis for the special order
b) Should Moonbeam accept the special order. Why or why not.

Answer 1

Answer and Explanation:

a. The preparation of the incremental analysis for the special order is presented below:

Sales revenue (15,000 × $7.60) $114,000

Less:

Cost of goods sold -$78,000

($260,000 × 75% ÷ 350,000 × 15,000)

Gross profit $36,000

Less: Operating expenses -$28,800

($840,000 × 80% ÷ 350,000 × 15,000)

Less:

Shipping cost -$3,000

Net income arise from special order $4,200

2. Yes the order should be accepted as it has the net income of $4,200 also the fixed cost would remain the same