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 120,100 units.

		Amount
Sales		$4,804,000
Cost of goods sold		3,503,718
Selling and administrative expenses		447,783
Net income		$852,499

Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $228,000.

In July, normally a slack manufacturing month, ThreePoint Sports receives a special order for 10,000 basketballs at $27 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?

What is the minimum selling price on the special order to produce net income of $5.17 per ball? (Round answer to 2 decimal places, e.g. 15.25.)

Minimum selling price

$

Answer 1

Solution :

(a) Incremental Analysis

	Reject Order	Accept Order	Net Income Increase (Decrease)
Revenue	$ 0	$ 270,000	$ 270,000
Cost of Goods Sold	$ 0	($ 211,800)	($ 211,800)
Selling and Administrative Expenses	$ 0	($ 25,600)	($ 25,600)
Net Income	$ 0	$ 32,600	$ 32,600

(b)

Should ThreePoint Sports Inc. accept the special order?

Yes, as the net income has been increased by $ 32,600

(c)

Minimum price to be charged = Cost of Goods per Unit + Selling and Administative expenses per Unit + Profit per Unit

                                              = $ 21.18 + $ 2.56 + $ 5.17

                                              = $ 28.91 per Unit

Working :

	Per Unit	Amount for 10,000 Units
Revenue	$ 27	$ 270,000
Cost of Goods Sold	($ 3,503,718 - 960,000) / 120,100 = $ 21.18	$ 211,800
Net Income	[($ 447,783 - 228,000) / 120,100] + $ 0.73 = $ 2.56	$ 25,600

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