Billings Company manufactures toasters. For the first 8 months of 2013, the company reported the following operating results while operating at 75% of plant capacity.
Sales (400,000 units) ..... $4,000,000
Cost of goods sold ....... 2,400,000
Gross profit ......... 1,600,000
Operating expenses ...... 900,000
Net income .......... $ 700,000
Cost of goods sold was 70% variable and 30% fixed. Operating expenses were 60% variable and 40% fixed.
In September, Billings Company receives a special order for 40,000 toasters at $6.00 each from Del Carpic Company of Lima, Peru. Acceptance of the order would result in $8,000 of shipping costs but no increase in fixed operating expenses.
Instructions
(a) Prepare an incremental analysis for the special order.
(b) Should Billings Company accept the special order? Why or why not?