Question:
Sanchez Inc. manufactures basketballs for the National Basketball Association (NBA). For the first 6 months of 2012, the company reported the following operating results while operating at 90% of plant capacity.
|
Amount
|
Per Unit
|
|
Sales
|
$4,500,000
|
$50.00
|
|
Cost of goods sold
|
3,150,000
|
35
|
|
Selling and administrative expenses
|
360,000
|
4
|
|
Net income
|
$990,000
|
$11.00
|
Fixed costs for the period were: cost of goods sold $900,000, and selling and administrative expenses $135,000. In July, normally a slack manufacturing month, Sanchez receives a special order for 9,000 basketballs at $32 each from the European Basketball Association (EBA). 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 Sanchez Inc. accept the special order?
(c) What is the minimum selling price on the special order to produce net income of $5.00 per ball?
(d) What nonfinancial factors should management consider in making its decision?