1. Clarke Dentistry Services (CDS) operates in Dome Mall, currently, producing its own porcelain and gold crowns in a purpose-built laboratory. The unit costs to produce the crowns are as follows:

	Porcelain	Gold
Raw materials	$ 110	$ 188
Direct labour	44	44
Variable overhead	10	10
Fixed overhead	44	44
Total	$208	$286

Fixed overhead is detailed as follows:

Salary (supervisor)	$48,000
Depreciation	10,000
Rent (lab facility)	52,000

Overhead is applied on the basis of direct labour hours. The rates above were computed

using 5,500 direct labour hours.

Kurwin Dental Care a dental laboratory has offered to supply CDS all the crowns it needs. Its price is $200 for porcelain crowns and $264 for gold crowns; however, the offer is conditional on supplying both types of crowns-it will not supply just one type for the price indicated. If the offer is accepted, the equipment used by CDS's laboratory would be scrapped (it is old and has no market value), the lab facility would be closed and the supervisor would be laid off. CDS uses 1,500 porcelain crowns and 1,000 gold crowns per year.

Required

Should CDS continue to make its own crowns or should they be purchased from the external supplier? What is the dollar effect of purchasing? [13 marks]

1. Bim Corporation produces cricket bats for kids that it sells for $36 each. At capacity, the company can produce 50,000 bats per year. The cost of producing and selling 50,000 bats are as follows:

	Cost per bat	Total
Direct materials	$13	$650,000
Direct manufacturing labour	5	250,000
Variable manufacturing overhead	2	10,000
Fixed manufacturing overhead	6	30,000
Variable selling expenses	3	150,000
Fixed selling expenses	2	100,000
Total costs	$31	$1,550,000

1. Suppose Bim is currently producing and selling 40,000 bats. At this level of production and sales, its fixed costs are the same as given in the preceding table. Vincy Corporation wants to place a one-time special order for 10,000 bats at $23 each. Bim Corporation will incur no variable selling costs for this special order. Should Bim Corporation accept this one-time special order? Support your answer with calculation. [6]
2. Suppose Bim is currently producing and selling 50,000 bats. If Bim accepts Vincy order it will have to sell 10,000 fewer bats to its regular customers. Evaluate the decision to accept the special order on both financial and non-financial considerations. [6]