ShurShot Sports Inc. manufactures basketballs for the National Basketball Association (NBA). For the first 6 months of 2014, the company reported the following operating results while operating at 80% of plant capacity and producing 120,100 units.
Amount
Sales $4,924,100
Cost of goods sold 3,725,503
Selling and administrative expenses 461,184
Net income $737,413
Fixed costs for the period were cost of goods sold $1,079,700, and selling and administrative expenses $230,592.
In July, normally a slack manufacturing month, ShurShot Sports receives a special order for 10,800 basketballs at $28 each from the Greek Basketball Association (GBA). Acceptance of the order would increase variable selling and administrative expenses $0.52 per unit because of shipping costs but would not increase fixed costs and expenses.
Schopp Inc. has been manufacturing its own shades for its table lamps. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 70% of direct labor cost. The direct materials and direct labor cost per unit to make the lamp shades are $3.92 and $4.90, respectively. Normal production is 32,500 table lamps per year.
A supplier offers to make the lamp shades at a price of $13.50 per unit. If Schopp Inc. accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $49,210 of fixed manufacturing overhead currently being charged to the lamp shades will have to be absorbed by other products.
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(a)Prepare the incremental analysis for the decision to make or buy the lamp shades. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Make Buy Net Income
Increase (Decrease)
Direct materials $
$
$
Direct labor
Variable overhead costs
Fixed manufacturing costs
Purchase price
Total annual cost
$
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(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 $
$
$
Gruden Company produces golf discs which it normally sells to retailers for $7.09 each. The cost of manufacturing 22,900 golf discs is:
Materials $12,137
Labor 35,266
Variable overhead 21,755
Fixed overhead 44,884
Total $114,042
Gruden also incurs 7% sales commission ($0.50) on each disc sold.
McGee Corporation offers Gruden $5 per disc for 4,600 discs. McGee would sell the discs under its own brand name in foreign markets not yet served by Gruden. If Gruden accepts the offer, its fixed overhead will increase from $44,884 to $51,312 due to the purchase of a new imprinting machine. No sales commission will result from the special order.
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(a)
Prepare an incremental analysis for the special order. (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 $
$
$
Materials
Labor
Variable overhead
Fixed overhead
Sales commissions
Net income $
$
$