Question
Please complete all questions Conklin Company manufactures outdoor fireplaces. For the first 9 months of 2017, the company reported the following operating results while operating
Please complete all questions
Conklin Company manufactures outdoor fireplaces. For the first 9 months of 2017, the company reported the following operating results while operating at 80% of plant capacity:
Sales (75,000 units) $6,750,000
Cost of goods sold 4,875,000
Gross profit 1,875,000
Operating expenses 750,000
Net income $1,125,000
Cost of goods sold was 80% variable and 20% fixed; operating expenses were 70% variable and 30% fixed.
In October, Conklin Company receives a special order for 4,000 fireplaces at $62 each from Langstons Landscape Company. Acceptance of the order would result in an additional $7,000 of shipping costs but no increase in fixed operating expenses.
(a) Prepare an incremental analysis for the special order.
(b) Should Conklin Company accept the special order? Why or why not?
(c) Before Conklin could give Langstons Landscape Company an answer, they received a special order from Benson Building & Supply for 15,000 fireplaces. Benson is willing to pay $65 per fireplace but they want a special design imbedded into the fireplace that increases cost of goods sold by $67,500. The special design also requires the purchase of a part that costs $5,000 and will have no future use for Conklin Company. Benson Building & Supply will pick up the fireplaces, so no shipping costs are involved. Due to capacity limitations, Conklin cannot accept both special orders. Which order should be accepted? Document your decision by preparing an incremental analysis for Bensons order.
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