Electrovision, Inc. produces and sells CD-ROM-based videogames played on PCs. It has successfully made the transition from 16-bit to 32-bit and N-64 systems. Since 32-bit games on CD-ROM are more profitable to sell than cartridge games for the N-64, Electrovision has decided to produce only 32-bit games this year in its Burbank, California, plant. The videogames are sold for $75 per unit, and the normal production level is 50,000 units a year. The unit variable costs of the videogames are as follows:

Direct materials $8

Direct labor 14

Variable overhead 5

Variable selling expenses 2

8941464. $29

Fixed manufacturing overhead costs are $600,000, and fixed administrative expenses are $400,000.

Required:

Each of the following questions is independent.

1. Electrovision has 2,500 units of football videogames on hand that have been carried over from the last Christmas season. Due to the declining popularity of the contents, the company will not be able to sell those games at the $75 regular selling price. The company wants to clear space in the storeroom to be ready for a series of new products to be stored. What is the minimum price the company should charge for a clearance sale?

2. The sales manager projects a sales increase of 20% over the normal level with a special, one-time media blitz that will cost $350,000. Should the company launch the special promotion? All other conditions remain unchanged.

3. A foreign buyer has placed a special order for 3,000 games at a one-time price of $45 a unit. The acceptance of this offer would not require extra support of fixed resources. What will be the impact of accepting this offer on the company's profit?

4. The controller of the company is concerned about so many "special" orders salespeople bring in. They always claim that it is a one-time deal, but they keep coming up with special orders that require price concessions. In the current quarter alone, the salespeople have brought in 12 special orders. The addition of those orders to the normal capacity level does not increase the total fixed costs yet, but the controller believes somebody must pay for those fixed resources pretty soon. Finally, she decides to charge at least the full cost of operations at the normal activity level for even a special order. How much should she charge per unit?

5. Due to a series of "politically incorrect" remarks made by the company president, a large group of employees are going on a strike. They say that they want to "teach a lesson" to management and will continue the strike for 3 months. The company could operate at 40% of the normal level for 3 months with the non-striking workforce, or could shut the Burbank plant down for the period. A plant shutdown would reduce the fixed overhead costs by 25% and the fixed administrative expenses by 40%. What should the company do?