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The image I attached has all the information. My question is Should Barnes Boards agree to the special order? Why and Why not? taking into account all available information provided my the image I attached.

The image I attached has all the information. My question is Should Barnes Boards agree to the special order? Why and Why not? taking into account all available information provided my the image I attached.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The image I attached has all the information. My question is Should Barnes Boards agree to the special order? Why and Why not? taking into account all available information provided my the image I attached.

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 350 $82 Direct Labor Direct labor hours 525 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.
Transcribed Image Text: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 350 $82 Direct Labor Direct labor hours 525 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.
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