Question

You own a small company that already produced 600 "Navigating Managerial Accounting"
booklets. Production of these 600 booklets resulted in a total cost of $1,800. You plan to sell
them for $14 each. You are certain that you will be able to sell all of them as they are.

A community college has offered to buy 200 of these booklets and pay you $19.50 each
(instead of $14 each) if you process further by adding a special cover with the college logo on it.

Your additional cost of adding the special college logo cover to 200 booklets would be $1,750.

This is a one-time offer only and would not grow into a future, larger repeat business, and
there are no other relevant issues.
Thus, your decision is whether to accept the community college offer and process further…or not!

Price that community college has offered to pay for each booklet: $19.50

A) (2 pts) Is the original total cost of $1,800 relevant to your decision? (YES or NO) and why??

B) (6 pts) Should you accept the community college offer and process further? (YES or NO)

AND SHOW YOUR CALCULATIONS AND A CLEARLY IDENTIFIED RESULTING SINGLE TOTAL DOLLAR AMOUNT differential in net income (and clearly show how you reached your answer). (USE an easy-to-follow differential analysis approach)

Answer 1

Answer for the first part

Part A

The total cost comprises fixed cost and Variable cost. The variable cost is linked to the production of 600 booklets. The variable cost may include costs like purchase of raw materials etc. Purchase of raw materials is dependent on the estimated number of quantity to be sold. Whiloe fixed cost include rent, salaries, electricity bills etc. All such costs are relevant as it is directly or indirectly related to the production of 600 booklets. So Yes, the cost is relevant.

Part B