Suppose the Hockey Hall of Fame in Toronto has approached Sports-Cardz with a special order. The Hall of Fame wants to purchase 50,000 hockey card packs for a special promotional campaign and offers $0.40 per pack, a total of $20,000. Sports-Cardz’s total production cost is $0.60 per pack, as follows:
Variable costs:
Direct materials.................................................................................... $0.14
Direct labour........................................................................................ 0.08
Variable overhead................................................................................. 0.13
Fixed overhead............................................................................................ 0.25
Total cost.................................................................................................... $0.60
Requirements
1. Prepare an incremental analysis to determine whether Sports-Cardz should accept the special sales order assuming fixed costs would not be affected by the special order.
2. Now assume that the Hall of Fame wants special hologram hockey cards. Sports-Cardz must spend $5,000 to develop this hologram, which will be useless after the special order is completed. Should Sports-Cardz accept the special order under these circumstances?
Show your analysis.