Answer and Explanation:
(a)
Reject Order
Revenues$ -0-
Cost of Goods Sold-0-
Operating Expense-0-
Net Income$ -0-
Accept order
Revenues$27,000
Cost of Goods Sold $18,900
Operating Expense $9,600
Net Income$ ($1,500)
Net income Increased (Decreased)
Revenues $27,000
Cost of Goods Sold ($18,900)
Operating Expense ($9,600)
Net Income$ ($1,500)
Variable cost of goods sold = $4,200,000 × 75% = $3,150,000.
Variable cost of goods sold per unit =
$3,150,000 ÷ 100,000 = $31.50
Variable cost of goods sold for the special order = 600 × $31.50 = $18,900.
Variable operating expenses = $2,000,000 × 70% = $1,400,000
Variable operating expenses per unit = $1,400,000 ÷ 100,000 = $14
Variable operating expenses for the special order = 600 × $14
= $8,400 + $1,200= $9,600
b)The incremental analysis shows that Gregg Company should not accept the special order reason been that the incremental costs exceed incremental revenues.
