30 37 33 COO COE 000 COE 000 CDE BCD OO CO C 408 ARCO #00000 ANCDE 300000 ABCD 4004 A Relevant Costing (Special Order/Discontinued Operations) Gagalicious Industries makes products for the ever growing group of "Little Monste Currently the firm has three major business units: meat gowns, eyeglasses, and hats. Th company has just received a request for 500 meat dresses to be used in a commercial shoot. These meat dresses are outside the normal budgeted sales of the firm and there is plenty of capacity to accept. The production company has offered to pay $46 per dress. The firm expects that taking the special order will result in the loss of the sale of 260 hats at regular prices. The firm has the following information: Dresses Eyeglasses Hats Units Sold 16,000 40,000 22,000 Selling Price per Unit $60 $32 $45 Variable Cost per Unit $17 $10 $27 Fixed Cost per Unit $34 $10 $23 24. What is the net effect on income of accepting the special order. A. $(14,500) B. $14,500 C. $9,820 D. $(9,820) Assume business continues as usual without the special order. Additionally, the firm's sale of hats has been slowing. They are considering closing down the hat division. If they do so, the firm will save $220,000 in fixed overhead by not having to pay the hat manager's salaries. The remainder of the fixed overhead is incurred at the firm level and allocated out to the divisions based on sales. 25. What is the change in net income if the hat division is closed? A. $(110,000) B. $(176,000) C. $110,000 D. $176000 make 26. Katy Perry offers to rent the hat factory for $335,000 per year. To rent the factory, the firm would have to close down the hat division. Given this rental option, what decision do regarding the hat division? you A. Keep the hat division open, the rental income does not cover the lost segment margin. B. Close the hat division, the rental income more than offsets the lost segment margin. C. Keep the hat division, who likes Katy Perry anyway! D. Close the hat division, it is losing money so any rental income is a good option. 7