CURRENT DESIGNS Current Designs faces a number of important decisions that require incremental analysis. Consider each of the following situations independently Situation 1 Recently, Mike Cichanowski, owner and CEO of Current Designs, received a phone call from the president of a brewing company. He was calling to inquire about the possibility of Current Designs producing "floating coolers" for a promotion his company was planning. These coolers resemble a kayak but are about one-third the size. They are used to float food and beverages while paddling down the river on a weekend leisure trip. The company would be interested in purchasing 150 coolers for the upcoming summer. It is willing to pay $375 per cooler. The brewing company would pick up the coolers upon completion of the order. Mike met with Diane Buswell, controller, to identify how much it would cost Current Designs to produce the coolers. After careful analysis, the following costs were identified. Direct materials Direct labor $120/unit $90/unit Variable overhead Fixed overhead $30/unit $1,500 Current Designs would be able to modify an existing mold to produce the coolers. The cost of these modifications would be approximately $3,000 Instructions (a) Prepare an incremental analysis to determine whether Current Designs should accept this special order to produce the coolers. Discuss additonal factors that Mike and Diane should consider if Current Designs is currently operating at full capacity. (b) Instructions (a) Prepare an incremental analysis showing whether Current Designs should make or buy the "Revolution Seating (b) Would your answer in (a) change if the productive capacity released by not making the seats could be used to NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" . System." produce income of $30,000? Situation (a) Prepare an incremental analysis to determine whether Current Designs should accept this special order to produce the coolers Net Income Reject Order Accept Order Increase (Decrease) Revenues Costs: Direct materials Direct labor Variable overhead Fixed overhead Cost to modify existing mold Total costs Net income Based solely on financial considerations, Current Designs should (indicate by placing an "X" in the appropriate cell below) RejectAccept Response (b) Discuss additonal factors that Mike and Diane should consider if Current Designs is currently operating at full capacity Response: Situation 2 (a) Prepare an incremental analysis to determine if Current Designs should purchase the new rotomold oven, assuming that the average price for natural gas over the next 10 years will be $0.65 per therm. Net Income Retain Oven Replace Oven Increase (Decrease) Variable mfg. costs New oven costs Proceed from scrapping old oven Total Based solely on financial considerations, Current Designs should (indicate by placing an "X" in the appropriate cell below) Retain Replace Response Total annual cost Based solely on financial considerations, Current Designs should (indicate by placing an "X" in the appropriate cell below Make Buy Response (b) Would your answer in (a) change if the productive capacity released by not making the seats could be used to produce income of $20,000? Net Income Make Buy Increase (Decrease) Total annual cost Opportunity cost Total cost Based solely on financial considerations, Current Designs should (indicate by placing an "X" in the appropriate cell below) Make Buy Response