Cost Data for Financial Reporting and Special Order Decisions Harman Greeting Card Company produces a full range of greeting cards sold through pharmacies and department stores. Each card is designed by independent artists. A production master is then prepared for each design. The production master has an indefinite life. Product designs for popular cards are deemed to be valuable assets. If a card sells well, many batches of the design will be manufactured over a period of years. Hence, Harman Greeting maintains an inventory of production masters so that cards may be pe-riodically reissued. Cards are produced in batches that may vary by increments of 1,000 units. An average batch consists of 10,000 cards. Producing a batch requires placing the production master on the printing press, setting the press for the appropriate paper size, and making other adjustments for colors and so forth. Following are facility-, product-, batch-, and unit-level cost information:
Product design and production master per new card $ 2,000.00 Batch setup (typically per 10,000 cards) 200.00 Materials per 1,000 cards 100.00 Conversion per 1,000 cards 80.00 Shipping Per batch 25.00 Per card 0.02 Selling and administrative Companywide 200,000.00 Per product design marketed 500.00
Information from previous year:
Product designs and masters prepared for new cards 90 Product designs marketed 120 Batches manufactured 500 Cards manufactured and sold 5,000,000
Required You may need to review materials in Chapter 4 to complete the requirements. a. Describe how you would determine the cost of goods sold and the value of any ending inventory for financial reporting purposes. (No computations are required.) b. You have just received an inquiry from Walgreens department stores to develop and manufacture 20 special designs for sale exclusively in Walgreens stores. The cards would be sold for $1.50 each, and Walgreens would pay Harman Greeting $0.35 per card. The initial order is for 20,000 cards of each design. If the cards sell well, Walgreens plans to place additional orders for these and other designs. Because of the preestablished sales relationship, no marketing costs would be associated with the cards sold to Walgreens. How would you evaluate the desirability of the Walgreens proposal? c. Explain any differences between the costs considered in your answer to requirement (a) and the costs considered in your answer to requirement (b).