# Discussion on Sports Cards

Complete the attached questions 5 times
Complete the attached questions 5 times. All information is attached

BUSI 3320 – Fall 2020

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Chapter 9 Hand-in assignment

Due date: See schedule of due dates on Moodle

• Assignments must be completed in Word or Excel only. Other formats, including handwritten assignments will not be accepted.
• Please ensure that your submissions are not LOCKED and are submitted through Moodle
• Solutions will be posted on Moodle after the due date.

PART A

Suppose the Basketball Hall of Fame has approached Sports Cards Inc. with a special order. The Hall of Fame wants to buy 50,000 packs of basketball cards for a special promotional campaign and offers to pay \$0.40 per pack.

The price charged to regular customers is \$0.75 per pack.

Sports Cards Inc. production costs per pack are as follows:

 Variable costs Cost Direct materials \$0.14 Direct labour 0.08 Variable overhead 0.13 Fixed overhead 0.25

Required:

1. Assume Sports Cards Inc. has the capacity to handle the order. Prepare an analysis to determine whether Sports Cards Inc. should accept the special order assuming fixed costs would not be affected by this special order.
2. Now assume that Basketball Hall of Fame want a special hologram on each card which will require Sports Cards Inc. to spend \$5,000 to develop it. It will be useless after this special order is completed. Should Sports Cards Inc. accept the special order? What is the minimum price per pack they should charge Basketball Hall of Fame?
3. Now assume that Sports Cards Inc. is operating at full capacity and the special order will require that it spend \$5,000 to develop the special hologram. What is the minimum price that Sports Cards Inc. should charge for this special order?

PART B

Top managers at Video avenue are alarmed by their operating losses.  They are considering dropping the ABC product line.  Company accountants have prepared the following analysis to help make the decision.

 TOTAL XYZ PRODUCT ABC PRODUCT Sales \$420,000 \$300,000 \$120,000 Variable expenses 230,000 150,000 80,000 Contribution margin 190,000 150,000 40,000 Fixed expenses Manufacturing 125,000 70,000 55,000 Administrative 70,000 55,000 15,000 Total fixed expenses 195,000 125,000 70,000 Operating income(loss) (\$5,000) \$25,000 (\$30,000)

Required:

1. Assume total fixed cost will not change if the company stops making and selling ABC products. Prepare an analysis to show whether the company should drop product ABC. Should the company drop product ABC?  What effect will this have on the current loss?

1. Now assume the company can avoid \$30,000 of the fixed expenses by dropping product ABC (these are direct fixed costs of the product line). Prepare an analysis to show whether the company should drop product ABC. Should the company drop product ABC?  What effect will this have on the current loss?

1. Now assume that all of the \$70,000 of fixed costs assigned to product ABC can be avoided if the product ABC is dropped. However, the marketing department has concluded that product XYZ sales would be adversely affect and decrease by 10%. Prepare an analysis to show whether the company should drop product ABC. Should the company drop product ABC?  What effect will this have on the current loss?

PART C

Fibre Systems Inc. manufactures an optical switch that it uses in its final product.  The company incurred the following manufacturing costs when it produced 70,000 optical switches last year:

 Direct materials \$630,000 Direct labour 105,000 Variable overhead 140,000 Fixed overhead 455,000 Total manufacturing costs for 70,000 units \$1,330,000

Fiber Systems does not yet know how many switches it will need this year.  However, another company has offered to sell Fiber Systems the switch for \$14 per unit.

Required:

1. Assume that if Fiber Systems buys the switch from the outside supplier, the manufacturing facilities that become idle cannot be used for any other purpose. Also assume that none of the fixed costs are avoidable. Should Fiber Systems buy or continue making the switches? Show your analysis.

1. Now, assume Fiber Systems can avoid \$100,000 of fixed costs a year by purchasing outside. In addition because sales are increasing, Fiber Systems needs 75,000 switches a year rather than 70,000.  What should Fiber Systems do now?  Show your analysis.

1. Given the scenario in #2, what is the highest price Fiber Systems would be willing to pay to purchase the switches from the outside supplier? Show your analysis.

PART D

FitTime Inc. produces two types of exercise treadmills, regular and deluxe.  The exercise craze is such that FitTime could use all of its available machine hours producing either model.  The two models are processes in the same department.  Information on the two models is as follows:

 PER UNIT Deluxe Regular Sales price \$990 \$560 Costs Direct materials 290 100 Direct labour 86 88 Variable manufacturing overhead 174 87 Total variable costs 550 275

Total fixed costs are \$100,000 which are all unavoidable.  Each deluxe model takes 2.5 hours to produce and each regular model takes 1.5 hours to produce.  FitTime has 2,000 machine hours available.

Required:

1. What is the optimal product mix? What is the expected total CM at this optimal product mix?
2. Assume demand for the Regular model is limited to 800 units Deluxe model is limited to 600 units. What is the optimal product mix? What is the expected total CM at this optimal product mix?

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