Instruction:

There are TWO questions in this part. Answer the questions with a single MS Office Word/Excel file and upload it here. Alternatively, you may answer the questions manually and scan or take a picture of your work and upload it here.

Question 1.

Hawk Skateboard Mfg. Inc. ("Hawk") manufactures skateboards. Its cost per unit to make 3,500 decks (a part of the skateboard) is as follows:

Direct materials$9.20

Direct labour1.77

Variable manufacturing overhead1.30

Fixed manufacturing overhead3.80

Total manufacturing costs$16.07

Suppose Reynolds Inc. ("Reynolds") offers to sell decks to Hawk for $15 each. Hawk will pay $1.50 per unit to transport the decks to its manufacturing plant, where it will add its own logo at a cost of $0.80 per deck. Hawk's accountants predict that purchasing the decks from Reynolds will enable the company to avoid $5,500 of fixed overhead.

Required:

Determine if Hawk should buy the decks or continue to make them.Support your answer with a differential analysis of the costs of each option.

Questions 2.

Psy Company produces a single product, Gangnam Golf Carts. The cost of producing and selling a single unit of this product at the company's normal activity level of 70,000 units per month is as follows:

Direct materials

$39.60

Direct labour

15.80

Variable manufacturing overhead

6.50

Fixed manufacturing overhead

17.20

Variable selling & administrative expense

1.80

Fixed selling & administrative expense

6.70

The normal selling price of the product is $71.50 per unit.

An order has been received from an overseas customer for 3,000 units to be delivered this month at a special discounted price of $65.00 per unit. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.10 less per unit on this order than on normal sales.

Required:

Assuming there is ample idle capacity to produce the units required by the overseas customer, should the special order be accepted?Support your answer with a proper analysis.