Problem 1 a. Special Order (15%) BSNA Company is a manufacturer of children car seat. The plant has capacity to produce 25,000 units each month. Production cost for the current activity level is as follows: Cost Description Direct materials $ 45 Direct manufacturing labor $20 Variable manufacturing overhead $700 (for materials handling, customer service, and machine setups) per batch Fixed manufacturing overhead allocated $325,000 Fixed marketing cost $190,000 Current production and sales are 16,500 units per month. Price per unit is $100. Variable Manufacturing Overhead vary with number of batches, The 16,500 units is produced in 50 batches. Recently, the company owner has just received a special order for 8,000 units at $90 per unit. The special order requires BSNA to produce in 20 batches of 400 units in each batch. Accepting the special order would not affect the company's regular business. (round your computations to 2 decimal digits). Required: 1. Calculate Operating Income under two situations. Should the company accept or reject this special order? 6% 2. Suppose plant capacity were 22,000 units, and the special order must either be taken in full or be rejected completely. Should the company accept the special order? Show your calculations. 6% 3. Explain the difference between avoidable cost and unavoidable cost? Give an example of each. 3% b. Keep or Drop (15%) BJ Company manufactured school bags, which sold through some book stores in town. Its normal quantity of units produced and sold is 50,000 units per month. Price per unit is $30. The company's fixed manufacturing overhead cost per month $76,000. Total fixed selling and administrative costs is $52,000. Variable cost per unit is $23. Due to pandemic situation, the company's four months sales have been reduced by 30% from its normal sales. The director estimated that this uncertainty may lead to worsen situation, so that the director asked financial manager to estimate production cost as follows: 1. Variable cost will easily adapt to changes is sales volume, 2. Fixed selling and administrative cost estimated to reduce by 20%, 3. Fixed manufacturing overhead costs estimated to reduce by 30%, 4. At the end of the shutdown period, there will be start-up cost of $11,000. Required: 1. Assume that pandemic condition reduces company's sales for four months, calculate the impact to company's operating income. Show your computations and recommend BJ director, to keep the plant operate or to close the plant. Write down your interpretations on the result in 1 or 2 sentences. 8% 2. Suppose another local company offer to rent the company's warehouse and will pay $146,000 for one year. This option means the company must incur additional cost for 12 months, as follows: Additional cost: Variable security cost, a month $ 700 Fixed security cost, 12 months $ 3,100 Insurance cost, 6 months $ 3,400 Calculate the offer and additional cost to your analysis and give suggestion whether the company should rent its warehouse or not. Write down your interpretations on the result in 1 or 2 sentences. 4% 3. The director would like to know the level of sales that BJ company will be indifferent between closing the plant or keep the plant. Compute the quantity level of sales. 3%