Flip manufactures footballs. The forecasted income statement for the year before any special...

Question:

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.

Requirements:

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:

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
Special order
Sales 4,0,00,000 3,75,000
Cost of goods sold -3200000 Variable cost 50,000 * 5 2,50,000
Selling expenses -300000
Operating income 5,00,000 1,25,000

Thus, as the result of accepting the offer, the operating income will be increased by $125,000.

Working Note:

Variable cost = 32,00,000 - 12,00,000 / 4,00,000

= $5 per unit.


Learn more about this topic:

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Operations of an Income Statement

from Accounting 101: Financial Accounting

Chapter 8 / Lesson 5
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