Question

Suppose the Hockey Hall of Fame in Toronto has approached

Active dash Cardz Active-Cardz

with a special order. The Hall of Fame wants to purchase

61,000

hockey card packs for a special promotional campaign and offers

$0.43

per​ pack, a total of

$26,230.

Active dash Cardz Active-Cardz​'s

total production cost is

$0.53

per​ pack, as​ follows:

Variable costs:

Direct materials. . . . . . . . . . . . .

$0.15

Direct labour. . . . . . . . . . . . . . . . .

0.06

Variable overhead. . . . . . . . . . . . .

0.08

Fixed overhead. . . . . . . . . . . . . . . . . . . . .

0.24

Total cost. . . . . . . . . . . . . . . . . . . . . . . . . .

$0.53

Requirements

1.	Prepare an incremental analysis to determine whether Active dash Cardz Active-Cardz should accept the special sales order assuming fixed costs would not be affected by the special order.
2.	Now assume that the Hall of Fame wants special hologram hockey cards. Active dash Cardz Active-Cardz must spend $2,100 to develop this​ hologram, which will be useless after the special order is completed. Should Active dash Cardz Active-Cardz accept the special order under these​ circumstances? Show your analysis.

Answer 1

Incremental analysis
			Reject	Accept	Effect on Income
Sales revenue		0	26230	26230
Cost:
Direct material		0	9150	-9150
Direct labour		0	3660	-3660
Variable overheads		0	4880	-4880
Net Income		0	8540	8540
Yes, the special order shall be ACCEPTED
Incremental analysis
			Reject	Accept	Effect on Income
Sales revenue		0	26230	26230
Cost:
Direct material		0	9150	-9150
Direct labour		0	3660	-3660
Variable overheads		0	4880	-4880
Cost of hologram		0	2100	-2100
Net Income		0	6440	6440
Yes, the special order shall be ACCEPTED