11-30 ILO 11-1, 11-2, 11-3, 11-4,11-7 Relevant Cost Exercises Each of the following situations is independent: a. Selection of the Most Profitable Produet DVD Production Company produces two basic tvpes of video games Flash and Clash. Pertinent data for DVD Production Company follow: Flash Clash Sales price Costs $250$140 Direct materials Direct labor (@ $50/hr.) Variable factory overhead Fixed factory overhead Marketing costs (all fixed) 50 100 50 20 10 S230 25 50 25 10 10 $120 Total costs Operating profit S 20 S 20 Based on labor hours: 2 direct labor hours (DL.Hs) per unit of Flash, and 1 DLH per unit of Clash. The DVD game craze is at its height so that either Flash or Clash alone can be sold to keep the plant operating at full capacity. However, labor capacity in the plant is insufficient to meet the combined demand for both games. Flash and Clash are processed through the same production departments. Required 1. What is the meaning and importance of the statement that "Flash and Clash are processed through the same 2. Which product should be produced? Briefly explain your answer. b. Special-Order Pricing Barry's Bar-B-Que is a popular lunch-time spot. Barry is conscientious about the quality of his meals, and he has a regular crowd of 600 patrons for his $5 lunch. His variable cost for each meal is about $2, and he figures his fixed costs, on a daily basis, at about $1,200. From time to time, bus tour groups with 50 patrons stop by. He has welcomed them since he has capacity to seat 700 diners in the average lunch period, and his cooking and wait staff can easily handle the additional load. The tour operator generally pays for the entire group on a single check to save the wait staff and cashier the additional time. Due to competitive conditions in the tour business, the operator is now asking Barry to lower the price to $3.50 per meal for each of the 50 bus tour members. Required Should Barry accept the $3.50 price? Why or why not? What if the tour company were willing to guarantee 200 patrons (or four bus loads) at least once a month for $3.00 per meal