Example: B-ball, Inc. manufactures basketballs as follows: Monthly productive capacity | 12,500 basketballs Current monthly sales Normal selling price 10,000 basketballs $30 per ball Manufacturing costs: Variable costs $12.50 per ball Fixed costs 7.50 (absorbed) $20.00 per ball Total manufacturing costs B-ball, Inc. received an order from an exporter for 5,000 balls at $18 each, spread over 3 months, which will not interfere with current production or cause overtime to be incurred. Prepare differential analysis to determine whether to accept or reject the special order. Reject Order Accept Order (Alt 1) (Alt 2) Differential Effects Alt? Revenues Costs: Variable mfg costs Profit (loss) $27,500 Why are fixed costs not considered here? Note: make sure accepting an order at a reduced price does not depress other prices/revenues.

Example: B-ball, Inc. manufactures basketballs as follows: Monthly productive capacity | 12,500 basketballs Current monthly sales Normal selling price 10,000 basketballs $30 per ball Manufacturing costs: Variable costs $12.50 per ball Fixed costs 7.50 (absorbed) $20.00 per ball Total manufacturing costs B-ball, Inc. received an order from an exporter for 5,000 balls at $18 each, spread over 3 months, which will not interfere with current production or cause overtime to be incurred. Prepare differential analysis to determine whether to accept or reject the special order. Reject Order Accept Order (Alt 1) (Alt 2) Differential Effects Alt? Revenues Costs: Variable mfg costs Profit (loss) $27,500 Why are fixed costs not considered here? Note: make sure accepting an order at a reduced price does not depress other prices/revenues.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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