Reference no: EM132451167

Question 1 - Three Point Sports Inc. manufactures basketballs for the Women's National Basketball Association (WNBA). For the first 6 months of 2017, the company reported the following operating results while operating at 80% of plant capacity and producing 120,300 units.

	Amount
Sales	$4,571,400
Cost of goods sold	3,713,667
Selling and administrative expenses	534,893
Net income	$322,840

Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $257,000.

In July, normally a slack manufacturing month, ThreePoint Sports receives a special order for 10,000 basketballs at $28 each from the Greek Basketball Association (GBA). Acceptance of the order would increase variable selling and administrative expenses $0.75 per unit because of shipping costs but would not increase fixed costs and expenses.

Required -

(1) Prepare an incremental analysis for the special order.

(2) Should ThreePoint Sports Inc. accept the special order?

(3) What is the minimum selling price on the special order to produce net income of $5.01 per ball?

Question 2 - The management of Shatner Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called CISCO, is a component of the company's finished product.

The following information was collected from the accounting records and production data for the year ending December 31, 2017.

1. 8,000 units of CISCO were produced in the Machining Department.

2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials $5.30, direct labor $4.25, indirect labor $0.45, utilities $0.38.

3. Fixed manufacturing costs applicable to the production of CISCO were:

Cost Item	Direct	Allocated
Depreciation	$2,000	$930
Property taxes	500	410
Insurance	950	600
	$3,450	$1,940

All variable manufacturing and direct fixed costs will be eliminated if CISCO is purchased. Allocated costs will have to be absorbed by other production departments.

4. The lowest quotation for 8,000 CISCO units from a supplier is $83,660.

5. If CISCO units are purchased, freight and inspection costs would be $0.37 per unit, and receiving costs totaling $1,260 per year would be incurred by the Machining Department.

Required -

(1) Prepare an incremental analysis for CISCO.

(2) Based on your analysis, what decision should management make?

(3) Would the decision be different if Shatner Company has the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture CISCO?

Question 3 - Thompson Industrial Products Inc. (TIPI) is a diversified industrial-cleaner processing company. The company's Dargan plant produces two products: a table cleaner and a floor cleaner from a common set of chemical inputs (CDG). Each week, 873,000 ounces of chemical input are processed at a cost of $207,000 into 582,000 ounces of floor cleaner and 291,000 ounces of table cleaner. The floor cleaner has no market value until it is converted into a polish with the trade name FloorShine. The additional processing costs for this conversion amount to $257,200.

FloorShine sells at $19 per 30-ounce bottle. The table cleaner can be sold for $19 per 25-ounce bottle. However, the table cleaner can be converted into two other products by adding 291,000 ounces of another compound (TCP) to the 291,000 ounces of table cleaner. This joint process will yield 291,000 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amount to $110,000. Both table products can be sold for $15 per 25-ounce bottle.

The company decided not to process the table cleaner into TSR and TP based on the following analysis.

Process Further
	Table Cleaner	Table Stain Remover (TSR)	Table Polish (TP)	Total
Production in ounces	291,000	291,000	291,000
Revenues	$221,160	$174,600	$174,600	$349,200
Costs:
CDG costs	69,000*	51,750	51,750	103,500**
TCP costs	0	55,000	55,000	110,000
Total costs	69,000	106,750	106,750	213,500
Weekly gross profit	$152,160	$67,850	$67,850	$135,700

*If table cleaner is not processed further, it is allocated 1/3 of the $207,000 of CDG cost, which is equal to 1/3 of the total physical output.

**If table cleaner is processed further, total physical output is 1,164,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost.

Required -

A. Determine if management made the correct decision to not process the table cleaner further by doing the following.

(i) Calculate the company's total weekly gross profit assuming the table cleaner is not processed further.

(ii) Calculate the company's total weekly gross profit assuming the table cleaner is processed further.

(iii) Compare the resulting net incomes and comment on management's decision.

B. Using incremental analysis, determine if the table cleaner should be processed further.