Barnes Boards (BB) makes skateboards. BB was approached by "Keep Kids Skating," a regional nonprofit with the mission of fighting childhood obesity through skateboarding. Kim Skatey, the President of Keep Kids Skating, offered to buy 350 longboards for $75 per board. BB normally sells its longboards directly to customers at $245 for each skateboard. Kim explained that the nonprofit is growing quickly and they would like to build an inventory of skateboards that would enable them to provide boards for kids that cannot afford their own skateboards. BB is operating at 80 percent of capacity. Also, BB has developed a relationship with Keep Kids Skating (For example, Keep Kids Skating has been allowed to advertise on BB's website free of charge) and believes that the charity's mission is aligned with it's own mission. Thus, the company would like to make the special order work.

BB's controller looked into the cost of the longboards using the following information from the activity-based accounting system:

TABLE 1: LONGBOARD COST INFORMATION FROM ABC SYSTEM

				Activity Rate**
	Activity Driver	Unused Capacity	Quantity Demanded*	Fixed	Variable
Direct Materials	# of board sets	0	350	0	$82
Direct Labor	Direct labor hours	0	525	0	15
Setups	Setup hours	60	1	$150	$5
Packaging	Packing hours	800	20	$10	$5
Machining	Machine hours	6,000	175	$40	$3
*This represents only the amount of resources demanded by the special order being considered.
**This is expected activity cost divided by activity capacity

Expansion of activity capacity for setups, packaging, and machining must be done in steps. For setups, each step provides an additional 20 hours of setup activity and costs $3,000. For inspection, activity capacity is expanded by 2,000 hours per year, and the cost is $20,000 per year (the salary of the additional inspector). Machine capacity can be leased for a year at a rate of $40 per machine hour. Machine capacity must be acquired, however, in steps of 1,500 machine hours.

Required:

1. Create a table (Table 1) showing the change in income for Barnes Boards if the order is accepted.
2. In a note to the table, explain whether or not the order requires any change in capacity for setups, packaging, or machining.
3. Create a table (Table 2) showing the change in income for Barnes Boards if the order is accepted, and assume the following:
   1. Keep Kids Skating is willing to pick up the order from Barnes Boards. Thus, the packaging activity can be eliminated for this order.
   2. $13 per unit related to packaging is included in direct materials.
   3. 0.5 hours per unit in direct labor is related to packaging.
4. Write up your recommendation to the management of Barnes Boards in 250 words or less and taking into account all available information (both qualitative and quantitative). Should they agree to the special order?
5. Combine Table 1, Table 2, and your recommendation into a single PDF and upload the PDF to complete the assignment. Be sure to reference the grading rubric and thoroughly review your work prior to submission.

reference

Cost Management

Don R. Hansen/Maryanne M. Mowen/Dan L. Heitger