Suppose the Hockey Hall of Fame in Toronto has approached Star-Cardz with a special order. The Hall of Fame wishes to purchase 54,000 hockey card packs for a special promotional campaign and offers $0.38 per pack, a total of $20,520. Star-Cardz’s total production cost is $0.58 per pack, as follows:
Variable costs:
Direct materials...................................................................................... $0.11
Direct labour .......................................................................................... 0.07
Variable overhead................................................................................... 0.10
Fixed overhead............................................................................................ 0.30
Total cost.................................................................................................... $0.58
Star-Cardz has enough excess capacity to handle the special order.
Requirements
1. Prepare an incremental analysis to determine whether Star-Cardz should accept the special sales order, assuming that fixed costs would not be affected by the special order.
2. Now assume that the Hall of Fame wants special hologram hockey cards. Star-Cardz would spend $5,300 to develop this hologram, which will be useless after the special order is completed. Should Star-Cardz accept the special order under these circumstances? Show your analysis.