Question
Mountain Company manufactures blenders. For the first 8 months of 2022, the company reported the following operating results while operating at 75% of plant capacity.
Mountain Company manufactures blenders. For the first 8 months of 2022, the company reported the following operating results while operating at 75% of plant capacity. This statement is in the format for financial accounting and external reporting purposes but is not too helpful in running the company where management needs to know how costs behave; fixed, variable, mixed.
Sales (350,000 units) | $4,375,000 |
Cost of goods sold | 2,600,000 |
Gross profit | 1,775,000 |
Operating expenses | 840,000 |
Net income | $ 935,000 |
It was determined that cost of goods sold was 70% variable costs and 30% fixed costs; operating expenses were 80% variable costs and 20% fixed costs.
In September, Mountain receives a special order for 15,000 blenders from Diego Company of Ciudad Puerto Vallarta offering to pay $7.60 per blender. Acceptance of the order would result in an additional $3,000 of shipping costs but no increase in fixed costs.
Required #1
1. Re-present the above statement in a more meaningful contribution margin format in order to help management identify cost behavior. The net income will be the same!
2. Calculate the variable cost per unit for COGS and Operating expenses. This will help answer Requirement 2.
Required #2
Prepare an incremental analysis for the special order [reject the order; accept the order] from Diego Company.
Required #3
Should Mountain Company accept the special order? Why or why not?
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