Question

# Lily Company manufactures toasters. For the first 8 months of 2020, the company reported the following...

Lily Company manufactures toasters. For the first 8 months of 2020, the company reported the following operating results while operating at 75% of plant capacity: Sales (358,400 units) \$4,375,000 Cost of goods sold 2,595,840 Gross profit 1,779,160 Operating expenses 837,760 Net income \$941,400 Cost of goods sold was 70% variable and 30% fixed; operating expenses were 80% variable and 20% fixed. In September, Lily receives a special order for 21,700 toasters at \$7.97 each from Luna Company of Ciudad Juarez. Acceptance of the order would result in an additional \$2,900 of shipping costs but no increase in fixed costs. (a) Prepare an incremental analysis for the special order. (Round computations for per unit cost to 2 decimal places, e.g. 15.25 and all other computations and final answers to the nearest whole dollar, e.g. 5,725. 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 Operating expenses Net income \$ \$ \$ (b) Should Lily accept the special order? Lily Company the special order.

Ans:

A. Cost of goods sold = \$2,595840 x 70% = 1,817088/ 358,400 = \$5.07 variable cost per unit

Operating expenses = \$837,760 x 80% = 670208 / 358,400 = \$1.87 variable cost per unit

 Revenues(21700 x 7.97) \$172,949 Cost of Goods Sold(21700 x 5.07) (\$110019) Operating Expenses[(21700 x 1.87) + \$2900] (\$43479) Net Income \$19,451

B. Lily Company should accept the special order. This is because the special order results in an increase in net income.

Hope this helped ! Let me know in case of any queries.

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