P7-1A

Hyper Sports Inc. manufactures basketballs for the National Basketball Association

(NBA). For the first 6 months of 2011, the company reported the following operating

results while operating at 90% of plant capacity and producing 112,500 units.

Amount

Sales $4,500,000

Cost of goods sold 3,600,000

Selling and administrative expenses 450,000

Net income $ 450,000

Fixed costs for the period were: cost of goods sold $1,080,000, and selling and administrative

expenses $225,000.

In July, normally a slack manufacturing month, Hyper Sports receives a special order

for 10,000 basketballs at $28 each from the Italian Basketball Association (IBA). Acceptance

of the order would increase variable selling and administrative expenses $0.50 per

unit because of shipping costs but would not increase fixed costs and expenses.

Instructions

(a) Prepare an incremental analysis for the special order.

(b) Should Hyper Sports Inc. accept the special order? Explain your answer.

(c) What is the minimum selling price on the special order to produce net income of

$4.10 per ball?

(d) What nonfinancial factors should management consider in making its

decision?