Question
Carter Company manufactures cappuccino makers. For the first eight months of the year the company reported the following operating results while operating at 80% of
Carter Company manufactures cappuccino makers. For the first eight months of the year the company reported the following operating results while operating at 80% of plant capacity:
Sales (500,000 units) | $75,000,000 |
Cost of goods sold | 45,000,000 |
Gross profit | 30,000,000 |
Operating expenses | 24,000,000 |
Net income | $ 6,000,000 |
An analysis of costs and expenses reveals that variable cost of goods sold is $80 per unit and variable operating expenses are $30 per unit.
In September, Carter Company receives a special order for 40,000 machines at $120 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 (a) Prepare an incremental analysis for the special order. (b) Should Carter Company accept the special order? Justify your answer.
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