Chapter 13 deals with Capital Budgeting Decisions.Please refer to the "In Business" article listed on the bottom of page 585 in your textbook (Chapter 13). "Investing in a Vineyard: A Cash Flows Perspective". From reading the information, do you believe this is a good investment for Michael Evans? Support your opinion with the concepts you have learned, as well as analyzing the financial information given

(Chapter 13 page 585)

IN BUSINESS

OUTSOURCING COMPANIES CONTINUE TO GROW

Research conducted byS&P Global Market Intelligenceindicates that five of the top 20 global employers are outsourcing and "workforce solutions" companies. One of those five companies isAccenture, which now employs 435,000 employees, up from just 200,000 in 2010. The Dublin, Ireland-based company provides consulting and/or outsourcing services to 95 of the Fortune Global 100 companies. Accenture tells companies that it "can do their work better and more cheaply, prodding executives to view labor as an on-demand resource they can rent as needed." As the outsourcing sector's annual revenues surpass $37 billion, some economists are expressing concerns because their research suggests "that outsourcing is a significant factor fueling the rise of income inequality in the past decade."

make an analysis showing whether a special order should be accepted.

Managers must often evaluate whether aspecial ordershould be accepted, and if the order is accepted, the price that should be charged. Aspecial orderis a one-time order that is not considered part of the company's normal ongoing business. To illustrate, Mountain Goat Cycles has just received a request from the Seattle Police Department to produce 100 specially modified mountain bikes at a price of $558 each. The bikes would be used to patrol some of the more densely populated residential sections of the city. Mountain Goat Cycles can easily modify its City Cruiser model to fit the specifications of the Seattle Police. The normal selling price of the City Cruiser bike is $698, and its unit product cost is $564 as shown below:

Direct materials $372

Direct labor 90

Manufacturing overhead 102

Unit product cost $564

The variable portion of the above manufacturing overhead is $12 per unit. The order would have no effect on the company's total fixed manufacturing overhead costs.

The modifications requested by the Seattle Police Department consist of welded brackets to hold radios, nightsticks, and other gear. These modifications would require $34 in incremental variable costs. In addition, the company would have to pay a graphics design studio $2,400 to design and cut stencils that would be used for spray painting the Seattle Police Department's logo and other identifying marks on the bikes. The company's managers believe that this order will have no effect on the company's other sales and it can be produced without disrupting any of the company's regular scheduled production.

To quantify the financial advantage (disadvantage) of accepting the Seattle Police Department's order, Mountain Goat Cycles should focus its attention on the incremental costs and benefits associated with the order. Because the existing fixed manufacturing

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overhead costs would not be affected by the order, they are not relevant. The financial advantage (disadvantage) of the special order would be