Morello 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 90% of plant capacity and producing 90,000 units.
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|
Per Unit |
|
|
Sales revenue |
$4,500,000 |
$50 |
|
Cost of goods sold |
3,060,000 |
34 |
|
Selling and administrative expenses |
360,000 |
4 |
|
Net income |
$1,080,000 |
$12 |
Fixed costs for the period were cost of goods sold $900,000, and selling and administrative expenses $180,000.
In July, normally a slack manufacturing month, Morello receives a special order for 10,000 basketballs at $30 each from the Chinese Basketball Association (CBA). Acceptance of the order would increase variable selling and administrative expenses $0.50 per unit because of shipping costs but would not increase fixed costs and expenses.
Instructions
(a)Prepare an incremental analysis for the special order.
(b)Should Morello Inc. accept the special order?
(c)What is the minimum selling price on the special order to produce net income of $5.50 per ball?
(d)What nonfinancial factors should management consider in making its decision?
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