Current Designs 7-1 (Part 2) Current Designs faces a number of important decisions that require incremental analysis. Current Designs is always working to identify ways to increase efficiency while becoming more environmentally conscious. During a recent brainstorming session, one employee suggested to Diane Buswell, controller, that the company should consider replacing the current rotomold oven as a way to realize savings from reduced energy consumption. The oven operates on natural gas, using 16,000 therms of natural gas for an entire year. A new, energy-efficient rotomold oven would operate on 14,100 therms of natural gas for an entire year. After seeking out price quotes from a few suppliers, Diane determined that it would cost approximately $235,000 to purchase a new, energy-efficient rotomold oven. She determines that the expected useful life of the new oven would be 10 years, and it would have no salvage value at the end of its useful life. Current Designs would be able to sell the current oven for $9,400. Prepare an incremental analysis to determine if Current Designs should purchase the new rotomold oven, assuming that the average price for natural gas over the next 10 years will be $0.70 per therm. (Enter decrease in net income then enter with a negative sign preceding the number or parenthesis, e.g. -15,000 or (15,000).) Retain Oven Replace Oven Net Income Increase (Decrease) Variable manufacturing costs New oven cost Proceeds from scrapping old oven Total Current Designs purchase the new rotomold oven. Diane is concerned that natural gas prices might increase at a faster rate over the next 10 years. If the company projects that the average natural gas price of the next 10 years could be as high as $0.85 per therm, discuss how that might change your conclusion in (a). (Enter decrease in net income then enter with a negative sign preceding the number or parenthesis, e.g. - 15,000 or (15,000).) Retain Oven Replace Oven Net Income Increase (Decrease) Variable manufacturing costs New oven cost Proceeds from scrapping old oven Total Current Designs purchase the new rotomold oven. Challenge Exercise 7-1 Conklan Company manufactures outdoor fireplaces. For the first 9 months of 2020, the company reported the following operating results while operating at 80% of plant capacity: Sales (79,900 units) $7,111,100 Cost of goods sold 5,093,625 Gross profit 2,017,475 Operating expenses 799,000 Net income $1,218,475 Cost of goods sold was 80% variable and 20% fixed; operating expenses were 70% variable and 30% fixed. In October, Conklan Company receives a special order for 4,200 fireplaces at $61 each from Langston's Landscape Company. Acceptance of the order would result in an additional $7,600 of shipping costs but no increase in fixed operating expenses. Prepare an incremental analysis for the special order. (Enter loss using either a negative sign preceding the number e.g. -2,945 or parentheses e.g. (2,945).) Net Income Reject order Accept order Increase (Decrease) Revenues $ $ $ Costs Cost of Goods Sold Operating Expenses Shipping Expenses Net Income $ $ Should Conklan Company accept the special order? Why or why not? , its income is with this order. Before Conklan could give Langston's Landscape Company an answer, they received a special order from Benson Building & Supply for 14,600 fireplaces. Benson is willing to pay $64 per fireplace but they want a special design imbedded into the fireplace that increases cost of goods sold by $68,620. The special design also requires the purchase of a part that costs $4,800 and will have no future use for Conklan Company. Benson Building & Supply will pick up the fireplaces so no shipping costs are involved. Due to capacity limitations, Conklan cannot accept both special orders. Which order should be accepted? Document your decision by preparing an incremental analysis for Benson's order. (Enter loss using either a negative sign preceding the number e.g. -2,945 or parentheses e.g. (2,945).) Net Income Reject order Accept order Increase (Decrease) Revenues $ $ $ Costs Cost of Goods Sold Operating Expenses Unique part Net Income $ $ $ Conklan should accept the order from Click if you would like to Show Work for this question: Open Show Work