Question

Problem 20-01A a-b, c

Sandhill Sports Inc. manufactures basketballs for the Women’s National Basketball Association (WNBA). For the first 6 months of 2020, the company reported the following operating results while operating at 80% of plant capacity and producing 120,400 units.

		Amount
Sales		$4,816,000
Cost of goods sold		3,700,304
Selling and administrative expenses		492,084
Net income		$623,612

Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $226,000.

In July, normally a slack manufacturing month, Sandhill Sports receives a special order for 10,000 basketballs at $29 each from the Greek Basketball Association (GBA). Acceptance of the order would increase variable selling and administrative expenses $0.76 per unit because of shipping costs but would not increase fixed costs and expenses.

(a) Prepare an incremental analysis for the special order. (Round all per unit computations to 2 decimal places, e.g. 15.25. Enter negative amounts 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
Selling and administrative expenses
Net income		$		$		$

(b) Should Sandhill Sports Inc. accept the special order?

YesNo

What is the minimum selling price on the special order to produce net income of $5.16 per ball? (Round answer to 2 decimal places, e.g. 15.25.)

Minimum selling price

$

Answer 1

(a)

	Reject Order	Accept Order	Net Income Increase (decrease)
Revenues	$0	$290,000	$290,000
Cost of goods sold	$0	$227,600	($227,600)
Selling and administrative expenses	$0	$29,700	($29,700)
Net Income	$0	$32,700	$32,700

Accept order

Revenues = 29,000 * $10

= $290,000

Cost of goods sold = [($3,700,304 - $960,000) / 120,400] * 10,000

= $22.76 * 10,000

= $227,600

Selling and administrative expenses = [($492,084 - $226,000) / 120,400 + $0.76] * 10,000

= ($2.21 + $0.76) * 10,000

= $29,700

(b)

Yes, it increases the net income by $32,700.

Minimum selling price

Net income to achieve = 10,000 units * $5.16

= $51,600

Net income = Sales - Cost of goods sold - Selling and administrative expenses

$51,600 = sales - $227,600 - $29,700

Sales = $308,900

Minimum Selling price = $308,900 / 10,000

= $30.89