Question

Problem 12-1 Ayayai 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 118,500 units. Sales Cost of goods sold Selling and administrative expenses Net income Amount $4,503,000 3,448,500 402,750 $651,750 Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $225,000. In July, normally a slack manufacturing month, Ayayai 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. Prepare an incremental analysis for the special order. (Round all per unit computations to 2 decimal places, e.g. 15.25. If amount decreases net income then enter the amount 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 Should Ayayai Sports Inc. accept the special order?

Answer 1

a) Incremental analysis

	Reject order	Accept order	Net income increase (decrease)
Revenues	0	10000*27 = 270000	270000
Cost of goods sold	0	10000*21 = -210000	-210000
Selling and administrative expenses	0	(1.5+.73)*10000 = -22300	-22300
Net income	0	37700	37700

2) Accept

3) Minimum price = 21+1.5+.73+5 = $28.23