Problem #1. Making special pricing decisions_Hall of Fame in Cooperstown

Problem #1. Making special pricing decisions

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:                                   

Variable costs:

Direct materials                      $ 0.13

Direct labor                                0.06

Variable overhead                  0.12

Fixed overhead                       0.30

Total cost                                $ 0.61

Hobby-Cardz has enough excess capacity to handle the special order.             

Requirements

1. Prepare a differential 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, assuming no change in the special pricing of $0.41 per pack?