Gregg Company supplies schools with floor mattresses to use in physical education classes. Gregg has received a special order from a large school district to buy 600 mats at $45 each. Acceptance of the special order will not affect fixed costs but will result in $1,200 of shipping costs.
For the first 6 months of 2013, the company reported the following operating results while operating at 80% capacity:
Sales (100,000 units) $7,000,000
Cost of goods sold $4,200,000
Gross profit $2,800,000
Operating expenses $2,000,000
Net income $ 800,000
Cost of goods sold was 75% variable and 25% fixed; operating expenses were 70% variable and 30% fixed.
Required:
(a) Prepare an incremental analysis for the special order.
(b) Should Gregg company accept the special order? Justify your answer.
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