Note: there are 5 problems here. You must do all five to receive full credit. Please remember that this type of problem does not generally require extensive computations. If you are finding yourself doing lots of work, please try to step back and think carefully about what you really need to do.

Problem 1. Geppettos Workshop is a toy manufacturing firm. It makes all different kinds of wooden toys, which are sold to retailers all over Canada. One of the most popular toys is a wooden puzzle with all the letters of the alphabet. The puzzle generally sells for $300. The standard cost card for the puzzle follows:

DM (2.1 board feet of wood @ $25 per linear foot) $52.50

DL (.25 hour @ $25/hour) 6.25

VOH (3 MH @ 1.5/hour) 4.50

FOH (3 MH @ 25.50/hour) 76.50

TOTAL COST $139.75

Due to the world-wide economic slowdown, Geppettos has not been producing at its normal full capacity, which is 450,000 MH. For the upcoming month, the budget will be based on an expected 325,000 MH.

A potential customer from Bribane has approached Geppettos about buying 40,000 puzzles. The customer would require that some elements of the puzzle be modified in order to better appeal to its target market. Most of the design changes would not entail increased costs. However, the client wants one modification that would require DL time to be doubled. The client is offering to pay $100 per puzzle if the puzzles can be delivered by the end of the upcoming month.

Compute the impact on net income of accepting the offer.

Problem 2. Naturally Pretty is a privatly owned nursery that operates in Sedona, Arizona. The firm has three product lines. Bushes is the most recent addition and has been underperforming expectations. Contribution format income statements for the products for the most recent month follow. Common costs of $50,000 which cannot be reasonably allocated to the products consist primarily of adminstrative costs.

Variable costs include the cost to acquire the seeds, as well as potting soil and pots to get the plants started in life. Salaries are for the gardeners who care for the grown plants, advertising is done for each product line in order to carefully target the appropriate market, fertilizer is to keep the plants healthy while they await adoption and land is an allocation of the lease payments on the area that the firm occupies.

What would be the impact on net income of the firm as a whole if it decides to drop bushes as a product line?