1. Making special order and pricing decisions
Suppose the Baseball Hall of Fame in Cooperstown, New York, has approached Active-Cardz with a special order. The Hall of Fame wishes to purchase 50,000 base-ball card packs for a special promotional campaign and offers $0.37 per pack, a total of $18,500. Active-Cardz's total production cost is $0.57 per pack, as follows:
Variable costs:
Direct Materials $0.14
Direct Labor 0.07
Variable Overhead 0.11
Fixed Overhead 0.25
Total Cost $0.57
Active-Cardz has enough excess capacity to handle the special order.
Requirements
1. Prepare an incremental analysis to determine whether Active-Cardz should accept the special sales order.
2. Now assume that the Hall of Fame wants special hologram baseball cards. Active-Cardz will spend $5,800 to develop this hologram, which will be useless after the special order is completed. Should Active-Cardz accept the special order under these circumstances?
2) Randy Azarski, a building contractor, builds houses in tracts, often building as many as 20 homes simultaneously. Azarski has budgeted costs for an expected number of houses in 20X0 as follows:
Direct Materials $3,500,000
Direct Labor $1,000,000
Job overhead $1,500,000
Total cost of jobs = $6,000,000
Selling and admin costs $1,500,000
Total cost =$7,500,000
The job construction overhead includes approximately $800,000 of fixed costs, such as the salaries of supervisors and depreciation on equipment. The selling and administrative costs include $500,000 of variable costs, such as sales commissions and bonuses that depend fundamentally on overall profitability.
Azarski wants an operating income of $1.5 million for 20X0. Compute the average target markup percentage for setting prices as a percentage of the following:
1. Direct materials plus direct labor.
2. The full "cost of jobs".
3. The variable "cost of jobs".
4. The full "cost of jobs" plus selling and administrations costs.
5. The variable "cost of jobs" plus variable selling and administrative costs.
3. Stein Jewelry had the following data (in thousands of South African rands, ZAR) for a given period. Assume there are no inventories. Fill in the blanks.
Sales ZAR_____
Direct materials 370
Direct labor __________
Indirect manufacturing __________
Manufacturing cost of goods sold 780
Gross margin 120
Selling and admin expenses ___________
Operating income 20
Prime cost (direct materials+direct labor) 600