Reference no: EM132530515

Carney Company manufactures cappuccino makers. For the first eight months of 2013, the company reported the following operating results while operating at 80% of plant capacity:

Sales (500,000 units)           $90,000,000

Cost of goods sold               54,000,000

Gross profit                           36,000,000

Operating expenses                     24,000,000

Net income                                $12,000,000

An analysis of costs and expenses reveals that variable cost of goods sold is $95 per unit and variable operating expenses are $35 per unit. In September, Carney Company receives a special order for 40,000 machines at $135 each from a major coffee shop franchise. Acceptance of the order would result in $10,000 of shipping costs but no increase in fixed expenses.

Instructions

Question (a) Explain an incremental analysis for the special order.

Question (b) Should Carney Company accept the special order? Justify your answer.