1) Dan Jacobs, production manager for GreenLife, invested in computer-controlled production machinery last year. He purchased the machinery from Superior Design at a cost of $3,000,000. A representative from Superior Design has recently contacted Dan because the company has designed an even more efficient piece of machinery. The new design would double the production output of the year-old machinery but would cost GreenLife another $4,500,000. Jacobs is afraid to bring this new equipment to the company president's attention because he convinced the president to invest $3,000,000 in the machinery last year.

Explain what is relevant and irrelevant to Jacobs' dilemma. What should he do? Identify each of the following as relevant or irrelevant to Dan's decision:

a. Greenlife purchased the old machinery for $3,000,000.

b. the new machinery would cost GreenLife $4,500,000

c.the new machinery would double the production output of the old machinery

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2) Suppose the Baseball Hall of Fame in Cooperstown, New York, has approached Sports- Cardz with a special order. The Hall of Fame wishes to purchase 51,000 baseball card packs for a special promotional campaign and offers $0.44 per pack, a total of $22,440. Sports- Cardz's total production cost is $0.64 per pack, as follows:

variable costs:

direct materials: $0.13

direct labor: $0.09

variable overhead: $0.12

fixed overhead: $0.30

total cost: $0.64

Sports-cardz has enough excess capacity to handle the special order.

1.Prepare an incremental analysis to determine whether Sports- Cardz should accept the special sales order.

2. Now assume that the hall of fame wants special hologram baseball cards. Sports-Cardz will spend $5,200 to develop this hologram, which will be useless after the special order is completed. Should sports-cardz accept the special order under these circumstances?

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3)San Jose sunglasses sell for about $154 per pair. Suppose that the company incurs the following average costs per pair:

direct materials: $41

direct labor: $13

variable manufacturing overhead: $10

variable marketing expenses: $2

fixed manufacturing overhead: $20

total cost: $86

*$2,350,000 total fixed manufacturing overhead/ 117,500 pairs of sunglasses

San Jose has enough idle capacity to accept a one-time-only special order from Washington Shades for 23,000 pairs of sunglasses at $79 per pair. San Jose will not incur an variable marketing expenses for the order.

a. How would accepting the order affect San Jose's Sunglasses operating income? In addition to the special oder's effect on profits, what other (longer-term, qualitative) factors should San Jose's Sunglasses managers consider in deciding whether to accept the order? Prepare the analysis to determine the effect on operating income.

b. San Jose's marketing manager, Peter Bing, argues against accepting the special order because the offer price of $79 is less than San Jose's $86 cost to make the sunglasses. Bing asks you, as one of San Jose's staff accountants, to explain whether his analysis is correct.

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4) Top managers of Movie Street are alarmed by their operating losses. They are considering dropping the VCR-tape product line. Company accountants have prepared the following analysis to help make this decision:

Movie Street

Income Statement

For the year ended December 31, 2012

Sales revenue : total ($432,000), DVD discs ($304,000), VCR tapes ($128,000)

Variable expenses: total ($242,000), DVD discs ($152000), VCR tapes ($90,000)

contribution margin: total ($190,000), DVD discs ($152,000), VCR tapes ($38,000)

Fixed expenses:

manufacturing: total (128,000), DVD discs ( 71000), VCR tapes (57,000)

marketing and administrative: total (78,000), DVD discs (59,000), VCR tapes (19,000)

total fixed expenses: Total ( 206,000) , DVD discs (130,000), VCR tapes (76,000)

operating income (loss): Total (-$16,000), dvd discs (22,000), VCR tapes (-$38,000)

Total fixed costs will not change if the company stops selling VCR tapes.

a. Prepare an incremental analysis to show whether Movie Street should drop the VCR-tape product line. Will dropping the VCR tapes add $38,000 to operating income? explain.