Question

ThreePoint 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 119,300 units.

		Amount
Sales		$4,533,400
Cost of goods sold		3,513,020
Selling and administrative expenses		508,495
Net income		$511,885

Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $252,000.

In July, normally a slack manufacturing month, ThreePoint Sports receives 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 $0.74 per unit because of shipping costs but would not increase fixed costs and expenses.

Prepare an incremental analysis for the special order. What is the minimum selling price on the special order to produce net income of $5.11 per ball?

Answer 1

a
	Reject order	Accept order	Net income increase(decrease)
Revenues	0	280000	280000
Cost of goods sold	0	-214000	-214000
Selling and administrative expenses	0	-28900	-28900
Net income	0	37100	37100
b
Minimum selling price	29.40	=21.40+2.15+0.74+5.11
Workings:
Per unit:
Cost of goods sold	21.40	=(3513020-960000)/119300
Selling and administrative expenses	2.15	=(508495-252000)/119300
Revenues	280000	=10000*28
Cost of goods sold	214000	=10000*21.40
Selling and administrative expenses	28900	=10000*(2.15+0.74)