Question

E25-10 Making special pricing decisions (504) Learning Objective 1 Suppose the Baseball Hall of Fame in...

E25-10 Making special pricing decisions (504) Learning Objective 1
Suppose the Baseball Hall of Fame in Cooperstown, New York, has approached Hungry-Cardz with a special order. The Hall of Fame wishes to purchase 55,000 baseball card packs for a special promotional campaign and offers $0.33 per pack, a total of $18,150. Hungry-Cardz’s total production cost is $0.53 per pack, as follows:
Variable costs:
Direct materials $0.13
Direct labor 0.04
Variable overhead 0.11
Fixed overhead 0.25
Total cost $0.53
Hungry-Cardz has enough excess capacity to handle the special order.
Requirements
1. Prepare a differential analysis to determine whether Hungry-Cardz should accept the special sales order.
2. Now assume that the Hall of Fame wants special hologram baseball cards. Hungry-Cardz will spend $5,000 to develop this hologram, which will be useless after the special order is completed. Should Hungry-Cardz accept the special order under these circumstances, assuming no change in the special pricing of $0.33 per pack?

Homework Answers

Answer #1

1.

Analysis of Special Order
Sales (55,000 x 0.33) 18,150
Less:
Direct materials (55,000 x 0.13) -7,150
Direct labor (55,000 x 0.04) -2,200
Variable overhead (55,000 x 0.11) -6,050
Net Income $2,750

Special sales order should be accepted since it will provide a net income of $2,750.

Fixed overhead is note relevant here since it will not increase due to the acceptance of special order.

2.

Analysis of Special Order
Sales (55,000 x 0.33) 18,150
Less:
Direct materials (55,000 x 0.13) -7,150
Direct labor (55,000 x 0.04) -2,200
Variable overhead (55,000 x 0.11) -6,050
Hologram cost -5,000
Net Income -$2,250

Special sales order should not be accepted since it will provide a net loss of $2,250.

Fixed overhead is note relevant here since it will not increase due to the acceptance of special order.

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