Topper Sports, Inc., produces high-quality sports equipment. The company’s Racket Division manufactures three tennis rackets—the Standard, the Deluxe, and the Pro—that are widely used in amateur play. Selected information on the rackets is given below: Standard Deluxe Pro Selling price per racket $ 45.00 $ 70.00 $ 100.00 Variable expenses per racket: Production $ 27.00 $ 35.00 $ 36.00 Selling (5% of selling price) $ 2.25 $ 3.50 $ 5.00 All sales are made through the company’s own retail outlets. The Racket Division has the following fixed costs: Per Month Fixed production costs $ 138,000 Advertising expense 118,000 Administrative salaries 68,000 Total $ 324,000 Sales, in units, over the past two months have been as follows: Standard Deluxe Pro Total April 2,000 1,000 5,000 8,000 May 8,000 1,000 3,000 12,000 . Assume that sales of the Standard racket increase by $21,800. What would be the effect on net operating income? What would be the effect if Pro racket sales increased by $21,800? Do not prepare income statements; use the incremental analysis approach in determining your answer.
Topper Sports, Inc., produces high-quality sports equipment. The company’s Racket Division manufactures three tennis rackets—the Standard, the Deluxe, and the Pro—that are widely used in amateur play. Selected information on the rackets is given below:
| Standard | Deluxe | Pro | ||||
| Selling price per racket | $ | 45.00 | $ | 70.00 | $ | 100.00 |
| Variable expenses per racket: | ||||||
| Production | $ | 27.00 | $ | 35.00 | $ | 36.00 |
| Selling (5% of selling price) | $ | 2.25 | $ | 3.50 | $ | 5.00 |
All sales are made through the company’s own retail outlets. The Racket Division has the following fixed costs:
| Per Month | ||
| Fixed production costs | $ | 138,000 |
| Advertising expense | 118,000 | |
| Administrative salaries | 68,000 | |
| Total | $ | 324,000 |
Sales, in units, over the past two months have been as follows:
| Standard | Deluxe | Pro | Total | |
| April | 2,000 | 1,000 | 5,000 | 8,000 |
| May | 8,000 | 1,000 | 3,000 | 12,000 |
. Assume that sales of the Standard racket increase by $21,800. What would be the effect on net operating income? What would be the effect if Pro racket sales increased by $21,800? Do not prepare income statements; use the incremental analysis approach in determining your answer.
Incremental Analysis: It is an approach that makes use of the differential cost and revenues between the given set of periods or alternatives to analyze the impact on the future operating income.
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