Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Consider the following details of the income statement of the McIntyre Pen Company (MPC) for the year ended December 31, 20X0 (Click the icon to
Consider the following details of the income statement of the McIntyre Pen Company (MPC) for the year ended December 31, 20X0 (Click the icon to view the income statement.) MPC's fixed manufacturing costs were $3.6 million and its fixed selling and administrative costs were $3.3 million. Sales commissions of 3% of sales are included in selling and administrative expenses. The division had produced and sold 3 million pens. (Click the icon to view information on an offer from Pizza Bonanza.) Read the requirements Requirement 1. Using the contribution-margin technique, prepare an analysis. Begin with the column without the special order, then complete the effect of the special order (one column total and one column per unit), and finally the totals with the special order. (Enter amounts in dollars and units instead of in millions. Enter per unit amounts to three decimal places. For amounts with a $0 balance, make sure to enter "O" in the appropriate cell.) Without Effect of With - Special Order Special Order Special Order More info Data table Units Total Per Unit Sales $ 16,500,000 9,450,000 Less cost of goods sold Gross margin or gross profit Less selling and administrative expenses $ 7,050,000 4,350,000 Sales Less variable expenses: Manufacturing Selling and administrative Total variable expenses Contribution margin Less fixed expenses: Manufacturing Near the end of the year, Pizza Bonanza offered to buy 140,000 pens on a special order. To fill the order, a special Pizza Bonanza logo would have to be added to each pen. Pizza Bonanza intended to use the pens in special promotions in an eastern city during early 20X1. Even though MPC had some idle plant capacity, the president rejected the Pizza Bonanza offer of $609,000 for the 140,000 pens. He said, "The Pizza Bonanza offer is too low. We'd avoid paying sales commissions, but we'd have to incur an extra cost of $0.35 per pen to add the logo. If MPC sells below its regular selling prices, it will begin a chain reaction of competitors' price cutting and of customers wanting special deals. I believe in pricing at no lower than 8% above our full costs of $13,800,000 / 3,000,000 units = $4.60 per unit plus the extra $0.35 per pen less the savings in commissions. $ 2,700,000 Operating income Print Done Print Selling and administrative Done Total fixed expenses Operating income Requirement 2. By what percentage would operating income increase or decrease if the order had been accepted? (Round the percentage to the nearest hundredth percent, X.XX%.) Operating income from selling more units would by %
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started