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P7-1A ShurShot Sports Inc. manufactures basketballs

Price: $2.50


ShurShot Sports Inc. manufactures basketballs for the National Basketball Association
(NBA). For the first 6 months of 2014, the company reported the following operating
results while operating at 80% of plant capacity and producing 120,000 units.

  Amount
Sales   4,800,000
Cost of goods sold   3,600,000
Selling and administrative expenses   405,000
Net income   795,000

Fixed costs for the period were cost of goods sold $960,000, and selling and administrative
expenses $225,000.
In July, normally a slack manufacturing month, ShurShot Sports receives a special
order for 10,000 basketballs at $27 each from the Greek Basketball Association (GBA).
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 ShurShot Sports Inc. accept the special order? Explain your answer.
(c) What is the minimum selling price on the special order to produce net income of $4.00
per ball?

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