Flip manufactures footballs. The forecasted income statement for the year before any special orders included sales of $4,000,000 (sales price is $10 per unit.) Manufacturing cost of goods sold is anticipated to be $3,200,000. Selling expenses are expected to be $300,000, and operating income is projected at $500,000. Fixed costs included in these forecasted amounts are $1,200,000 for manufacturing cost of goods sold and $100,000 for selling expenses. Floozy is offering a special order to buy 50,000 footballs for $7.50 each. There will be no additional selling expenses, and sufficient capacity exists to manufacture the extra footballs.
Prepare an incremental analysis schedule to demonstrate by what amount would operating income be increased or decreased as a result of accepting the special order.
Operating income relates to the income, which focuses on measuring the profit, which is obtained from the operations of the company after all the expenses are subtracted.
Answer and Explanation:
|Incremental Analysis Schedule|
|Cost of goods sold||-3200000||Variable cost 50,000 * 5||2,50,000|
Thus, as the result of accepting the offer, the operating income will be increased by $125,000.
Variable cost = 32,00,000 - 12,00,000 / 4,00,000
= $5 per unit.
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from Accounting 101: Financial AccountingChapter 8 / Lesson 5