Challenge Exercise 7-1

Conklan Company manufactures outdoor fireplaces. For the first 9 months of 2020, the company reported the following operating results while operating at 80% of plant capacity:

Sales (68,300 units)		$6,283,600
Cost of goods sold		4,354,125
Gross profit		1,929,475
Operating expenses		683,000
Net income		$1,246,475

Cost of goods sold was 80% variable and 20% fixed; operating expenses were 70% variable and 30% fixed. In October, Conklan Company receives a special order for 3,600 fireplaces at $61 each from Langstons Landscape Company. Acceptance of the order would result in an additional $6,700 of shipping costs but no increase in fixed operating expenses.

Prepare an incremental analysis for the special order. (Enter loss using either a negative sign preceding the number e.g. -2,945 or parentheses e.g. (2,945).)

		Reject order		Accept order		Net Income Increase (Decrease)
Revenues		$		$		$
Costs
Cost of Goods Sold
Operating Expenses
Shipping Expenses
Net Income		$		$		$

Should Conklan Company accept the special order? Why or why not?

YesNo

, its income is

higherlowersame

with this order.

Before Conklan could give Langstons Landscape Company an answer, they received a special order from Benson Building & Supply for 15,400 fireplaces. Benson is willing to pay $64 per fireplace but they want a special design imbedded into the fireplace that increases cost of goods sold by $67,760. The special design also requires the purchase of a part that costs $4,700 and will have no future use for Conklan Company. Benson Building & Supply will pick up the fireplaces so no shipping costs are involved. Due to capacity limitations, Conklan cannot accept both special orders. Which order should be accepted? Document your decision by preparing an incremental analysis for Bensons order. (Enter loss using either a negative sign preceding the number e.g. -2,945 or parentheses e.g. (2,945).)

		Reject order		Accept order		Net Income Increase (Decrease)
Revenues		$		$		$
Costs
Cost of Goods Sold
Operating Expenses
Unique part
Net Income		$		$		$

Conklan should accept the order from

Benson Building and SupplyLangstons Landscape Company

.