Question #2: Cajun Coffee Company manufactures coffee makers. For the first seven months of 2018, the company reported the following results while operating at 80% of plant capacity:

Sales (50,000 units) $9,000,000

Cost of goods sold 5,400,000

Gross profit 3,600,000

Operating expenses 2,400,000

Net income $1,200,000

In analyzing the costs and expenses, we find that variable cost of goods sold is $95 per unit and variable operating expenses are $35 per unit.

In August, Cajun Coffee Company receives a special order for 3,000 machines at $135 each from a major coffee shop franchise. If this order is accepted, there will be an additional $2,000 of shipping costs. However, there will be no increase in fixed expenses.

Instructions

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

(b) Should Cajun Coffee accept the special order? Explain thoroughly

Question #3: Richardson Company manufactured 6,000 units of a part that is used in its product L-47 and incurred the following costs:

Direct materials $ 70,000

Direct labor 30,000

Variable manufacturing overhead 20,000

Fixed manufacturing overhead 40,000

$160,000

Bradley, Inc. (an outside firm) has made an offer to sell the same component part to Richardson Company for $24 per unit. In analyzing the Richardson Companys fixed costs, we see that the fixed manufacturing overhead consists mainly of depreciation on the equipment used to manufacture the part and would not be reduced (cannot be avoided) if the component part was purchased from the outside vendor. If the component part is purchased from the outside vendor, Richardson Company has the opportunity to use the factory equipment to produce another product which is estimated to have a contribution margin of $30,000.

Instructions

Prepare an incremental analysis report for Richardson Companys management to help them make the best decision.