Download INSTRUCTOR: Konstantinos Kanellopoulos, MSc (L.S.E.), M.B.A. F

INSTRUCTOR: Konstantinos Kanellopoulos, MSc (L.S.E.), M.B.A.
FACILITATOR: Dr. Haitham Ahmed Abdelmoneim, YIC.
COURSE: MBA-510-50-F13 Accounting Analysis
SEMESTER: I
Short-Term-Business Decisions
Exercises & Problems
Konstantinos Kanellopoulos & Haitham Ahmed Abdelmoneim
28th November 2013
PART I EXERCISES FROM CHAPTER 20
Exercise 1
E20-10 Making special order and pricing decisions [10–15 min]
Suppose the Baseball Hall of Fame in Cooperstown, New York, has approached Hobby-Cardz with a
special order. The Hall of Fame wishes to purchase 57,000 baseball card packs for a special promotional
campaign and offers $0.41 per pack, a total of $23,370. Hobby-Cardz’s total production cost is $0.61 per
pack, as follows:
Hobby-Cardz has enough excess capacity to handle the special order.
Requirements
1. Prepare an incremental analysis to determine whether Hobby-Cardz should accept the special sales
order.
2. Now assume that the Hall of Fame wants special hologram baseball cards. Hobby-Cardz will spend
$5,900 to develop this hologram, which will be useless after the special order is completed. Should
Hobby-Cardz accept the special order under these circumstances?
Exercise 2
E20-11 Making special order and pricing decisions [20–25 min]
San Jose Sunglasses sell for about $157 per pair. Suppose that the company incurs the following average
costs per pair:
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San Jose has enough idle capacity to accept a one-time-only special order from Washington Shades for
25,000 pairs of sunglasses at $80 per pair. San Jose will not incur any variable marketing expenses for the
order.
Requirements
1. How would accepting the order affect San Jose’s operating income? In addition to the special order’s
effect on profits, what other (longer-term qualitative) factors should San Jose’s managers consider in
deciding whether to accept the order?
2. San Jose’s marketing manager, Peter Bing, argues against accepting the special order because the offer
price of $80 is less than San Jose’s $84 cost to make the sunglasses. Bing asks you, as one of San Jose’s
staff accountants, to explain whether his analysis is correct.
Exercise 3
E20-18 Making outsourcing decisions [10–15 min]
Fiber 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 Fiber Systems the switch for $18.50 per unit. If Fiber Systems buys
the switch from the outside supplier, the manufacturing facilities that will be idled cannot be used for any
other purpose, yet none of the fixed costs are avoidable.
Requirement
1. Prepare an outsourcing analysis to determine if Fiber Systems should make or buy the switch.
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PART II PROBLEM FROM CHAPTER 20
P20-23A Making dropping a product and product-mix decisions [20–25 min]
Members of the board of directors of Safe Zone have received the following operating income data for the
year ended May 31, 2012:
Members of the board are surprised that the industrial systems product line is losing money. They
commission a study to determine whether the company should drop the line. Company accountants
estimate that dropping industrial systems will decrease fixed cost of goods sold by $84,000 and decrease
fixed marketing and administrative expenses by $14,000.
Requirements
1. Prepare an incremental analysis to show whether Safe Zone should drop the industrial systems product
line.
2. Prepare contribution margin income statements to show Safe Zone’s total operating income under the
two alternatives: (a) with the industrial systems line and (b) without the line. Compare the difference
between the two alternatives’ income numbers to your answer to Requirement 1.
3. What have you learned from the comparison in Requirement 2?
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