Question

SportsCards Inc. manufactures baseball cards sold in packs of 10 in drugstores and grocery stores throughout the country. It is the second leading firm in an industry with four major firms. SportsCards has been approached by Zip Cereal Inc., which would like to order a special edition of cards to use as a promotion with its new cereal. SportsCards would be solely responsible for designing and producing the cards. Zip wants to order 30,000 sets and has offered $25,500 for the total order. Each set will consist of 30 cards. SportsCards currently produces cards in sheets of 120.

           

Production, marketing and other costs (per sheet)
Direct materials	$1.30
Direct labor	$0.25
Variable overhead	$0.45
Fixed overhead	$0.20
Variable marketing	$0.05
Fixed marketing	$0.35
Insurance, taxes and administrative salaries	$0.10
Cost for special order
Design	$2,500
Other setup costs	$5,000

            SportsCards would incur no marketing costs for the special order. It has the capacity to accept this order without interrupting regular production.

           

            Required：

            (1)   Should SportsCards accept the special order? Why or why not (support your answer with appropriate calculations)

           

            (2)   What are the important strategic issues in the decision?

Answer 1

No of sets in special order = 30000
No of sets per sheet = 4 i.e. 120/30
Number of sheets required for special order = 7500 i.e. 30000/4

1.

Direct Material	$               9,750	=7500*1.3
Direct Labor	$               1,875	=7500*0.25
Variable Manufacturing Overhead	$               3,375	=7500*0.45
Design Costs	$               2,500
Other Setup Costs	$               5,000
Total Costs for Special Order	$            22,500
Revenue from Special order	$            25,500
Net Benefit	$              3,000

Sports Cards should accept the order, since it gives net benefit of $3000

2.
By accepting the order, the company is able to make a new customer which buys in good quantity. Moreover through this order cards will reach many consumers thereby promoting the brand of the company which will result in greater benefits of company.