# E25-10 making special pricing decisions

E25-10 Making special pricing decisions – 1.\$2,750

Suppost 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 promotion campaign and offers \$.033 per pack, a total of \$18,150. Hungry-Cardz’s production cost is \$0.53 per pack, as follows:

Variable Costs:

Direct materials \$0.13

Direct Labor 0.04

Total cost \$0.53

Hungry-Cardz had enough excess capacity to handle the special order

Requirements

1. Prepare a differential analysis to dtermine 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 Hugnry-Cardz accept the special order under these circumstances, assuming no change in the special pricing of \$0.33 per pack?

E25-13 making dropping a product decisions – 1.\$(33,000)

Top managers of Best Video are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountants have prepared the following analysis to help make this decision:

Best Video

Income Statement

For the Year Ended December 31, 2016

Total Blu-ray DVD

Discs Discs

Sales Revenue \$432,000 \$309,000 \$123,000

Variable Costs 240,000 150,000 90,000

Contribution Margin 192,000 159,000 33,000

Fixed Costs:

Manufacturing 134,000 75,000 59,000

Selling and Administrative 69,000 52,000 17,000

Total Fixed Expenses 203,000 127,000 76,000

Operating Income (Loss) \$(11,000) \$ 32,000 \$(43,000)

Total Fixed costs will not change if the company stops selling DVD’s

Requirements

1. Prepare a differential analysis to show whether Best Video should drop the DVD product line.

2. Will dropping DVDs add \$43,000 to operating income? Explain.

E25-15 Making product mix decisions – 2.CM per MHr, Regular \$393

Tread Mile produces two types of exercise treadmills: regular and delux. the exercise craze is such that Tread Mile could use all its available machine hours to produce either model. The two models are processed through the same production departments. Data for both models are as follows:

Per Unit

DeluxeRegular

Sales Price \$1,040\$570

Costs:

Direct Materials300 90

Direct Labor 78 190

Variable Operating Expenses 115 67

Total Costs889 479

Operating Income \$ 151 \$91

*allocated on the basis of machine hours

Requirements

1. What is the constraint?

2. Which model should Tread Mile produce? (Hint: Use the allocation of fixed manufacturing overhead to determine the proportion of machine hours used by each product.)

3. If Tread Mile should produce both models, compute the mix that will maximize operating income.

E25-18 Making outsourcing decisions

Eclipse Systems manufactures an optical switch that it uses in its final product. The switch has the following manufacturing costs per unit:

Direct Materials\$11.00

Direct Labor 4.50

Manufacturing Product Cost\$29.50

Another company has offered to sell Eclipse Systems the switch for \$20.00 per unit. If the Eclipse Systems buys the swithc from the outside supplier, the idle manufacturing facilities cannot be used for any other purpose, yet none of the fixed costs are avoidable.

Prepare an outsourcing analysis to determine whether Eclipse Systems should make or buy the switch.

P25-33 Making sell or process further decisions

This problem continues the Daniels Consulting situation from Problem P24-37 of Chapter 24. Daniels Consulting provides consulting services at an average price of \$150 per hour and incurs variable costs of \$75 per hour. Assume average fixed costs are \$5,250 a month.

Daniels has developed new software that will revolutionize billing for companies. Daniels has already invested \$300,000 in the software. It can market the software as is at \$40,000 per client and expects to sell to 12 clients. Daniels can develop the software further, adding integration to Microsoft products at an additional development cost of \$150,000. The additional development will allow Daniels to sell the software for \$49,000 each but to 16 clients.

Should Daniel sell the software as is or develop it further?