Question

ThreePoint Sports Inc. manufactures basketballs for the Women’s National Basketball Association (WNBA). For the first 6 months of 2017, the company reported the following operating results while operating at 80% of plant capacity and producing 118,600 units.

		Amount
Sales		$4,506,800
Cost of goods sold		3,475,506
Selling and administrative expenses		498,060
Net income		$533,234

Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $249,000.

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 $0.73 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 ThreePoint Sports Inc. accept the special order?

                                                                      Yes/No

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

Solution a:

Variable cost of goods sold per unit = ($3,475,506 - $960,000) / 118600 =$21.21 per unit

Variable selling and administrative expenses per unit = ($498,060 - $249,000)/118600 = $2.10 per unit

Variable selling and administrative expenses per unit for special order = $2.10 + $0.73 = $2.83 per unit

Particulars	Reject order	Accept Order	Net income Increase (Decrease)
Revenues	$0.00	$280,000.00	$280,000.00
Cost of goods sold	$0.00	$212,100.00	$212,100.00
Selling and administrative expenses	$0.00	$28,300.00	$28,300.00
Net income (Loss)	$0.00	$39,600.00	$39,600.00

Solution b:
Yes, special order should be accepted.

Solution c:

Minimum selling price per unit = Cost per unit + Target profit per unit = ($21.21+ $2.83) + $5.16 = $29.20 per unit