Groovy Music Company produces compact discs of background music for restaurants and other retail shops. Its disc recording machines are capable of producing 50 discs per hour. The unit-related cost of producing the discs is $3.00. The discs sell for $12.00 each. Food Mood Music Co. has asked the company to produce 10,000 copies of a disc for $9.00. Groovy Music estimates that for this special order the unit-related cost of producing the disc will be $5.00 and that, due to the unique nature of the recording, its machines will only be able to produce 20 discs per hour. Groovy Music has a total of 5,000 machine hours of capacity. In addition, to accept the special order, Groovy Music will have to purchase an additional special-purpose machine that will cost $6,000.
1) Assume that demand for Groovy Music's compact discs is 200,000 units and that the special order has to be either taken in full or rejected. Prepare an analysis that indicates whether or not the special order should be accepted.
2) Assume that Groovy Music is currently selling 230,000 compact discs to its regular customers and that the special order has to be either taken in full or rejected. Prepare a financial analysis that indicates whether or not the special order should be accepted.
3) Assume that demand for Groovy Music's compact discs is 230,000 units and that the special order has to be either taken in full or rejected. Groovy Music's wants the Food Mood Music job but doesn't want to decrease its earnings. Prepare a financial analysis that indicates the price that Groovy Music must receive in order to break even on the special order.
4) Relate some aspect of the Newmann article to Groovy Music.
Excel file contains solution of relevant costing problem.