Question 2. ABC Company supplies schools with floor mattresses to use in physical education classes. ABC has received a special order from a large school district to buy 600 mats at $45 each. Acceptance of the special order will not affect fixed costs but will result in $1,200 of shipping costs. For the first 6 months of 2016, the company reported the following operating results while operating at 80% capacity: Sales (100,000 units) Cost of goods sold Gross profit Operating expenses $7,000,000 4,200,000 2,800,000 2,000,000 $800,000 Net income Cost of goods sold was 75% variable and 25% fixed; operating expenses were 70% variable and 30% fixed. Instructions (a) Prepare an incremental analysis for the special order. (b) Should ABC Company accept the special order? Justify your answer.
Question 2. ABC Company supplies schools with floor mattresses to use in physical education classes. ABC has received a special order from a large school district to buy 600 mats at $45 each. Acceptance of the special order will not affect fixed costs but will result in $1,200 of shipping costs. For the first 6 months of 2016, the company reported the following operating results while operating at 80% capacity: Sales (100,000 units) Cost of goods sold Gross profit Operating expenses $7,000,000 4,200,000 2,800,000 2,000,000 $800,000 Net income Cost of goods sold was 75% variable and 25% fixed; operating expenses were 70% variable and 30% fixed. Instructions (a) Prepare an incremental analysis for the special order. (b) Should ABC Company accept the special order? Justify your answer.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Question 2
ABC Company supplies schools with floor mattresses to use in physical education classes. ABC has received a special
order from a large school district to buy 600 mats $45 each. Acceptance of the special order will not affect fixed costs
but will result in $1,200 of shipping costs.
For the first 6 months of 2016, the company reported the following operating results while operating at 80% capacity:
Sales (100,000 units)
$7,000,000
4,200,000
Cost of goods sold
Gross profit
2,800,000
Operating expenses
2,000,000
Net income
$ 800,000
Cost of goods sold was 75% variable and 25% fixed; operating expenses were 70% variable and 30% fixed.
Instructions
(a) Prepare an incremental analysis for the special order.
(b) Should ABC Company accept the special order? Justify your answer.
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