1. Chapter 25 Short-Term Business Decisions Demonstration Problems © 2016 Pearson Education, Inc.25-1

2. E25-10 Suppose the Baseball Hall of Fame in Cooperstown, New York, has approached Hungry-Cardz with a special order. The Hall of Fame wishes to purchase 55,000 baseball card packs for a special promotional campaign and offers $0.33 per pack, a total of $18,150. Hungry-Cardz’s total production cost is $0.53 per pack, as follows: Hungry-Cardz has enough excess capacity to handle the special order. © 2016 Pearson Education, Inc.25-2

3. E25-10 Requirements 1.Prepare a differential analysis to determine whether Hungry-Cardz should accept the special sales order. 1.Now assume that the Hall of Fame wants special hologram baseball cards. Hungry- Cardz will spend $5,000 to develop this hologram, which will be useless after the special order is completed. Should Hungry-Cardz accept the special order under these circumstances, assuming no change in the special pricing of $0.33 per pack? © 2016 Pearson Education, Inc.25-3

4. E25-10 Requirement 1: Prepare a differential analysis to determine whether Hungry- Cardz should accept the special sales order. © 2016 Pearson Education, Inc.25-4

5. E25-10 Requirement 1: Prepare a differential analysis to determine whether Hungry- Cardz should accept the special sales order. © 2016 Pearson Education, Inc.25-5

6. E25-10 Requirement 1: Prepare a differential analysis to determine whether Hungry- Cardz should accept the special sales order. © 2016 Pearson Education, Inc.25-6

7. E25-10 Requirement 1: Prepare a differential analysis to determine whether Hungry- Cardz should accept the special sales order. © 2016 Pearson Education, Inc.25-7

8. E25-10 Requirement 1: Prepare a differential analysis to determine whether Hungry- Cardz should accept the special sales order. Hungry-Cardz should accept the special sales order because accepting the special order will increase operating income by $2,750. Fixed costs do not change and, therefore, are not relevant. They should not be considered. © 2016 Pearson Education, Inc.25-8

9. E25-10 Requirement 2: Now assume that the Hall of Fame wants special hologram baseball cards. Hungry-Cardz will spend $5,000 to develop this hologram, which will be useless after the special order is completed. Should Hungry- Cardz accept the special order under these circumstances, assuming no change in the special pricing of $0.33 per pack? © 2016 Pearson Education, Inc.25-9

10. E25-10 Requirement 2: Now assume that the Hall of Fame wants special hologram baseball cards. Hungry-Cardz will spend $5,000 to develop this hologram, which will be useless after the special order is completed. Should Hungry- Cardz accept the special order under these circumstances, assuming no change in the special pricing of $0.33 per pack? © 2016 Pearson Education, Inc.25-10

11. E25-10 Requirement 2: Now assume that the Hall of Fame wants special hologram baseball cards. Hungry-Cardz will spend $5,000 to develop this hologram, which will be useless after the special order is completed. Should Hungry- Cardz accept the special order under these circumstances, assuming no change in the special pricing of $0.33 per pack? © 2016 Pearson Education, Inc.25-11

12. E25-10 Requirement 2: Now assume that the Hall of Fame wants special hologram baseball cards. Hungry-Cardz will spend $5,000 to develop this hologram, which will be useless after the special order is completed. Should Hungry- Cardz accept the special order under these circumstances, assuming no change in the special pricing of $0.33 per pack? © 2016 Pearson Education, Inc.25-12

13. E25-10 Requirement 2: Now assume that the Hall of Fame wants special hologram baseball cards. Hungry-Cardz will spend $5,000 to develop this hologram, which will be useless after the special order is completed. Should Hungry- Cardz accept the special order under these circumstances, assuming no change in the special pricing of $0.33 per pack? © 2016 Pearson Education, Inc.25-13

14. E25-10 Hungry-Cardz should not accept this special order. If Hungry-Cardz were to accept this special order, operating income would decrease by $2,250. Requirement 2: Now assume that the Hall of Fame wants special hologram baseball cards. Hungry-Cardz will spend $5,000 to develop this hologram, which will be useless after the special order is completed. Should Hungry- Cardz accept the special order under these circumstances, assuming no change in the special pricing of $0.33 per pack? © 2016 Pearson Education, Inc.25-14

15. E25-18 Eclipse Systems manufactures an optical switch that it uses in its final product. The switch has the following manufacturing costs per unit: Another company has offered to sell Eclipse Systems the switch for $20.00 per unit. If Eclipse Systems buys the switch from the outside supplier, the idle manufacturing facilities cannot be used for any other purpose, yet none of the fixed costs are avoidable. Prepare an outsourcing analysis to determine whether Eclipse Systems should make or buy the switch. © 2016 Pearson Education, Inc.25-15

16. E25-18 © 2016 Pearson Education, Inc.25-16

17. E25-18 © 2016 Pearson Education, Inc.25-17

18. E25-18 © 2016 Pearson Education, Inc.25-18

19. E25-18 © 2016 Pearson Education, Inc.25-19

20. E25-18 © 2016 Pearson Education, Inc.25-20

21. E25-18 © 2016 Pearson Education, Inc.25-21

22. E25-18 Genesis should continue making the switch in-house because the variable cost of outsourcing the switch, $20.00 per switch, exceeds the variable cost of making the switch in-house, $21.50 per switch. © 2016 Pearson Education, Inc.25-22

23. End of Chapter 25 © 2016 Pearson Education, Inc.25-23