Question

Suppose the Baseball Hall of Fame in? uptown, New? York, has approached Stars Cardz

Stars Cardz with a special order. The Hall of Fame wishes to purchase 50,000 baseball card packs for a special promotional campaign and offers $0.44 per? pack, a total of $22,000.

Star?Cardz?'s total production cost is $0.64 per? pack, as? follows

Variable costs:
Direct materials	$0.15
Direct labor	0.05
Variable overhead	0.14
Fixed overhead	0.30
Total cost	$0.64

Stars has enough excess capacity to handle the special order.

Requirements

1.

Prepare a differential analysis to determine whether Star?Cardz should accept the special sales order.

2.

Now assume that the Hall of Fame wants special hologram baseball cards.

Stars Cardz will spend $5,600 to develop this? hologram, which will be useless after the special order is completed. Should Stars Cardz accept the special order under these? circumstances, assuming no change in the special pricing of $0.44 per? pack?

Answer 1

Answer 1.
Increase in Revenue
Expected Increase in Revenue - 50,000 Packs X $0.44	22,000.00
Increase in Costs
Expected Increase in Variable Manufacturing Costs - 50,000 Packs X ($0.15 + $0.05 + $0.14)	17,000.00
Expected Increase in Operating Income	5,000.00
Should Accept the order, as there will be Increase in Operating Income by $5,000
Answer 2.
Increase in Revenue
Expected Increase in Revenue - 50,000 Packs X $0.44		22,000.00
Increase in Costs
Expected Increase in Variable Manufacturing Costs - 50,000 Packs X ($0.15 + $0.05 + $0.14)	17,000.00
Special Hologram Developing Expenses	5,600.00	22,600.00
Expected Increase (decrease) in Operating Income		(600.00)
Should not Accept the order, as there will be decrease in Operating Income by $600