Question
Hoopster Inc. manufactures basketballs. The company's forecasted income statement for the year, before any special orders, is as follows: Amount Per Unit Sales $8,000,000 $10.00
Hoopster Inc. manufactures basketballs. The company's forecasted income statement for the year, before any special orders, is as follows:
Amount | Per Unit | |
---|---|---|
Sales | $8,000,000 | $10.00 |
Manufacturing Cost of Goods Sold | $6,400,000 | $8.00 |
Gross Profit | $1,600,000 | $2.00 |
Selling Expenses | $600,000 | $1.00 |
Net Operating Income | $1,000,000 | $1.00 |
Fixed costs included in the forecasted income statement are $4,000,000 in manufacturing cost of goods sold and $400,000 in selling expenses.
A new client placed a special order with Hooper, offering to buy 100,000 basketballs for $6.00 each. The company will incur no additional selling expenses if it accepts the special order. Assuming that Hoopster has sufficient capacity to manufacture 100,000 more basketballs, by what amount would differential income increase (decrease) as a result of accepting the special order?
Analyze using contribution margin decision making and give decision.
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