Question

1)Suppose the Baseball Hall of Fame in Cooperstown, New York,has approached Sports- Cardz with a special order. The Hall of Famewishes to purchase 51,000 baseball card packs for a specialpromotional campaign and offers $0.44 per pack, a total of $22,440.Sports- Cardz's total production cost is $0.64 per pack, asfollows:

variable costs:

direct materials: $0.13

direct labor: $0.09

variable overhead: $0.12

fixed overhead: $0.30

total cost: $0.64

Sports-cardz has enough excess capacity to handle the specialorder.

1.Prepare an incremental analysis to determine whether Sports-Cardz should accept the special sales order.

2. Now assume that the hall of fame wants special hologrambaseball cards. Sports-Cardz will spend $5,200 to develop thishologram, which will be useless after the special order iscompleted. Should sports-cardz accept the special order under thesecircumstances?

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2)San Jose sunglasses sell for about $154 per pair. Suppose thatthe company incurs the following average costs per pair:

direct materials: $41

direct labor: $13

variable manufacturing overhead: $10

variable marketing expenses: $2

fixed manufacturing overhead: $20

total cost: $86

*$2,350,000 total fixed manufacturing overhead/ 117,500 pairs ofsunglasses

San Jose has enough idle capacity to accept a one-time-onlyspecial order from Washington Shades for 23,000 pairs of sunglassesat $79 per pair. San Jose will not incur an variable marketingexpenses for the order.

a. How would accepting the order affect San Jose's Sunglassesoperating income? In addition to the special oder's effect onprofits, what other (longer-term, qualitative) factors should SanJose's Sunglasses managers consider in deciding whether to acceptthe order? Prepare the analysis to determine the effect onoperating income.

b. San Jose's marketing manager, Peter Bing, argues againstaccepting the special order because the offer price of $79 is lessthan San Jose's $86 cost to make the sunglasses. Bing asks you, asone of San Jose's staff accountants, to explain whether hisanalysis is correct.

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3) Top managers of Movie Street are alarmed by their operatinglosses. They are considering dropping the VCR-tape product line.Company accountants have prepared the following analysis to helpmake this decision:

Movie Street

Income Statement

For the year ended December 31, 2012

Sales revenue : total ($432,000), DVD discs ($304,000), VCRtapes ($128,000)

Variable expenses: total ($242,000), DVD discs ($152000), VCRtapes ($90,000)

contribution margin: total ($190,000), DVD discs ($152,000), VCRtapes ($38,000)

Fixed expenses:

manufacturing: total (128,000), DVD discs ( 71000), VCR tapes(57,000)

marketing and administrative: total (78,000), DVD discs(59,000), VCR tapes (19,000)

total fixed expenses: Total ( 206,000) , DVD discs (130,000),VCR tapes (76,000)

operating income (loss): Total (-$16,000), dvd discs (22,000),VCR tapes (-$38,000)

Total fixed costs will not change if the company stops sellingVCR tapes.

a. Prepare an incremental analysis to show whether Movie Streetshould drop the VCR-tape product line. Will dropping the VCR tapesadd $38,000 to operating income? explain.