Question

Challenge Exercise 7-1 (Part Level Submission)

Conklan Company manufactures outdoor fireplaces. For the first 9 months of 2020, the company reported the following operating results while operating at 80% of plant capacity:

Sales (80,300 units)		$7,307,300
Cost of goods sold		5,219,500
Gross profit		2,087,800
Operating expenses		803,000
Net income		$1,284,800

Cost of goods sold was 80% variable and 20% fixed; operating expenses were 70% variable and 30% fixed.

In October, Conklan Company receives a special order for 3,800 fireplaces at $62 each from Langston’s Landscape Company. Acceptance of the order would result in an additional $6,400 of shipping costs but no increase in fixed operating expenses.

(a)

Prepare an incremental analysis for the special order. (Enter loss using either a negative sign preceding the number e.g. -2,945 or parentheses e.g. (2,945).)

		Reject order		Accept order		Net Income Increase (Decrease)
Revenues		$		$		$
Costs
Cost of Goods Sold
Operating Expenses
Shipping Expenses
Net Income		$		$		$

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Answer 1

(a)

Prepare an incremental analysis for the special order. (Enter loss using either a negative sign preceding the number e.g. -2,945 or parentheses e.g. (2,945).)

		Reject order		Accept order		Net Income Increase (Decrease)
Revenues		$0		3800*62 = 235600		$235600
Costs
Cost of Goods Sold		0		3800*52 = -197600		-197600
Operating Expenses		0		3800*7 = -26600		-26600
Shipping Expenses		0		-6400		-6400
Net Income		$0		$5000		$5000