Question;Question 1Suppose the Baseball Hall of Fame in Cooperstown, New York, has approachedHobby-Cardz with a special order. The Hall of Fame wishes to purchase 57,000baseball card packs for a special promotional campaign and offers $0.41 per pack, atotal of $23,370. Hobby-Cardz?s total production cost is $0.61 per pack, as follows:Variable costs:Direct materials $ 0.13Direct labor 0.06Variable overhead 0.12Fixed overhead 0.30Total cost $ 0.61Hobby-Cardz has enough excess capacity to handle the special order.Requirements1. Prepare a differential analysis to determine whether Hobby-Cardz should acceptthe special sales order.2. Now assume that the Hall of Fame wants special hologram baseball cards.Hobby-Cardz will spend $5,900 to develop this hologram, which will be uselessafter the special order is completed. Should Hobby-Cardz accept the specialorder under these circumstances, assuming no change in the special pricing of$0.41 per pack?Question 2E25-13 Making dropping a product decisionsTop managers of Movie Street are alarmed by their operating losses. They areconsidering dropping the DVD product line. Company accountants haveprepared the following analysis to help make this decision:Total fixed costs will not change if the company stops selling DVDs.Requirements1. Prepare a differential analysis to show whether Movie Street should drop theDVD product line.2. Will dropping DVDs add $41,000 to operating income? Explain.Question 3Fiber Systems manufactures an optical switch that it uses in its final product. Theswitch has the following manufacturing costs per unit:Direct Material $ 9.00Direct Labor 1.50Variable Overhead 5.00Fixed Overhead 9.00Manufacturing Product Cost $ 24.50Another company has offered to sell Fiber Systems the switch for $18.50 per unit.If Fiber Systems buys the switch from the outside supplier, the manufacturingfacilities that will be idled cannot be used for any other purpose, yet none of thefixed costs are avoidable.Prepare an outsourcing analysis to determine whether Fiber Systems shouldmake or buy the switch.Question 4Lifemaster produces two types of exercise treadmills: regular and deluxe. Theexercise craze is such that Lifemaster could use all its available machine hours toproduce either model. The two models are processed through the same productiondepartments. Data for both models is as follows:Per UnitDeluxe RegularSale Price $ 1,020 $ 560Costs:Direct Material 300 90Direct Labor 88 188Variable Manufacturing Overhead 264 88Fixed Manufacturing Overhead* 138 46Variable Operating Expenses 111 65Total Costs 901 477Operating Income $ 119 $ 83*allocated on the basis of machine hoursRequirements1. What is the constraint?2. Which model should Lifemaster produce? (Hint: Use the allocation of fixedmanufacturing overhead to determine the proportion of machine hours used byeach product.)3. If Lifemaster should produce both models, compute the mix that will maximizeoperating income.Question 5This problem continues the Davis Consulting, Inc. situation from Problem P24-37of Chapter 24. Davis Consulting provides consulting services at an average priceof $175 per hour and incurs variable costs of $100 per hour. Assume average fixedcosts are $5,250 a month.Davis has developed new software that will revolutionize billing for companies.Davis has already invested $200,000 in the software. It can market the software asis at $30,000 per client and expects to sell to eight clients. Davis can develop thesoftware further, adding integration to Microsoft products at an additional developmentcost of $120,000. The additional development will allow Davis to sell thesoftware for $38,000 each, but to 20 clients.Should Davis sell the software as is or develop it further?
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