SY Telc has recently started to manufacture RecRobo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a mobile phone. The cost structure to manufacture 20,000 RecRobos is as follows:

		Cost
Direct materials ($47 per robot)		$940,000
Direct labour ($25 per robot)		500,000
Variable overhead ($4 per robot)		80,000
Allocated fixed overhead ($25 per robot)		500,000
Total		$2,020,000

SY Telc is approached by Chen Inc., which offers to make RecRobo for $78 per unit or $1,560,000. Using incremental analysis, determine whether SY Telc should accept this offer under each of the following independent assumptions: (1) Assume that $340,000 of the fixed overhead cost is avoidable. (If an amount reduces the net income then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000).)

2

Pro Sports Inc. manufactures basketballs for professional basketball associations. For the first six months of 2020, the company reported the following operating results while operating at 90% of plant capacity:

		Amount		Per Unit
Sales		$4,406,400		$51.00
Cost of goods sold		2,937,600		34.00
Selling and administrative expenses		328,320		3.80
Net income		$1,140,480		$13.20

Fixed costs for the period were cost of goods sold of $864,000, and selling and administrative expenses of $155,520. In July, normally a slack manufacturing month, Pro Sports receives a special order for 8,640 basketballs at $32 each from the Italian Basketball Association. Accepting the order would increase variable selling and administrative expenses by $1.00 per unit because of shipping costs, but it would not increase fixed costs and expenses.

Prepare an incremental analysis for the special order. (Round per unit calculations to 2 decimal places, e.g. 15.25 and final answers to 0 decimal places, e.g. 125.)

Incremental revenue				$
Incremental cost:
Variable COGS		$
Variable S & A
Additional S & A
Incremental income				$

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Question Part Score

--/2

Should Pro Sports Inc. accept the special order?

Pro Sports Inc. should acceptreject the special order.

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Question Part Score

--/0.5

What is the minimum selling price on the special order to produce net income of $5.00 per ball? (Round answer to the 2 decimal places, e.g. 15.25.)

Minimum selling price

$

3 Sew It Inc. has an industrial sewing machine that it has used for the past 5 years. The company is considering replacing the machine with a faster model as it is starting to break down more often. As it will be faster and eliminate overtime, it will increase revenues by $4,650 per year over its useful life of 7 years.

		Current Machine			New Machine
Original purchase cost		$27,900			$27,800
Accumulated depreciation		$22,200			-
Useful life		7 years			7 years

If sold now, the current sewing machine would have a salvage value of $5,200. If it is used for the remainder of its useful life, the current sewing machine would have zero salvage value. The new sewing machine is expected to have zero salvage value after 7 years. Determine whether the current sewing machine should be replaced. (Ignore the time value of money.) (If an amount reduces the net income then enter with a negative sign preceding the number, e.g. -15,000 or parenthesis, e.g. (15,000).)

		Retain		Replace		Incremental cost savings
Incremental revenues		$		$		$
New machine cost
Proceeds from sale of old machine
Net Incremental savings		$		$		$

The company should/should not replace the sewing machine.