Hall of Fame wishes to purchase 54,000 baseball card packs for a special promoti

Question

Hall of Fame wishes to purchase 54,000 baseball card packs for a special promotional campaign and offers $0.40 pe pack, a total of $21,000 Road the reuremects Data Tabie Expected increase'in expenser s 0.13 Direct materials Direct labor ariabie overhead Fixed overhead Total cost special order under these dircumstances, assuming no change i Start by prepering the analysis with the asditional cost for the scial hologram. (Enter docreases to profits with in the special pricing of $0.40 per pack? we.parerthe ormn s sign.) Print Done Expected increase in revenues Expected increase in expenses packs x

Explanation / Answer

(1)

Variable cost

Direct material = $0.13

Direct labor = $0.08

Variable overhead = $0.09

Variable cost per unit = $0.30

Special order = 54,000 baseball card packs

Special order price = $0.40

Increase in revenue = 54,000 x 0.40

= $21,600

Expected increase in expenses:

Variable manufacturing cost = 54,000 x 0.30

= $16,200

Expected increase in operating income = Expected increase in revenue - Expected increase in revenue

= 21,600 - 16,200

= $5,400

Decision - Special order should be accepted since it will increase the operating income of the firm by $5,400.

(2)

Increase in revenue = 54,000 x 0.40

= $21,600

Expected increase in expenses:

Variable manufacturing cost = 54,000 x 0.30

= $16,200

Fixed manufacturing cost (Hologram) = $5,000

Expected increase in total expenses = 16,200 + 5,000

= $21,200

Expected increase in operating income = Expected increase in revenue - Expected increase in revenue

= 21,600 - 21,200

= $400

Decision - Special order should be accepted since it will increase the operating income of the firm by $400.

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