Perchwick Furniture: A Comprehensive Case: instructor review copy (printed )

This copy shows the whole case at once: every question in order with its exhibits, the instructor key and answer logic for each question, the feedback for every option with the named error behind each wrong one, the facts each video supplies, and the full transcript of every video. In the case itself, students see one question at a time and see feedback only after submitting.

Numbers are the faculty demonstration data set, which is not one of the 20 student versions. Question 14 branches on the sign of the cushion equipment’s NPV. In this data set the NPV is negative, so the key is d; in versions where it is positive, the key is b.

Learning Objective: Comprehensive Case: Use managerial accounting information to make a business recommendation (Chapters 2, 6, 7, 8, 9, 10, 11, 12)
Availability: Homework
Origin: Publisher

This comprehensive case walks you through one management decision at Perchwick Furniture, from understanding what a new product line costs through a final recommendation, so you can focus on which information matters and why the same cost can be treated differently in different decisions.

Perchwick Furniture: A Comprehensive Case

Perchwick Furniture is a fictitious company.

Perchwick Furniture makes wooden furniture for cats and the people who live with them. In its shop in western Michigan, about 40 employees cut, finish, and assemble window perches, scratching benches, and other pieces that Perchwick sells mainly through its own website.

Last year Perchwick designed its most ambitious product yet: the Highwick, a freestanding modular cat tower. The Highwick has a stable wooden base, climbing platforms that can be moved around, an enclosed hideaway, a washable cushion, and scratching panels that owners replace when they wear out. Perchwick cuts, drills, finishes, and assembles the wooden parts in its own shop, adds the scratching panels, checks every kit, and packs it flat for the customer to put together at home. The cushion is bought from an outside supplier. Extra platforms and a second hideaway are sold separately as add-ons.

In January, Perchwick began making and selling the Highwick as a one-year pilot, in one standard configuration. It is now mid-April. Rather than wait out the year, Nora Lindgren, Perchwick’s founder and general manager, wants to decide by the end of the month whether the Highwick becomes a permanent part of the business, so that Perchwick can plan the rest of the year around the answer. Three other matters have landed on her desk: a home-goods retailer, Brightwell Home, wants a large order in its own colors; the first quarter’s results came in below budget; and late cushion deliveries keep holding up kits that are otherwise ready to ship.

You are an analyst working with Perchwick’s controller, Daniel Reyes. Ms. Lindgren has asked you to work through the cost information, the retailer’s proposal, the first quarter’s results, and the cushion problem, and then to tell her what you would do.

The people you will hear from

Nora Lindgren, Founder and General Manager
Daniel Reyes, Controller
Keisha Coleman, Sales Manager
Luis Ortega, Production Manager
Hannah Ellis, Assembly Supervisor

Instructions. Work through the seventeen questions in order; each question is submitted before the next opens. Watch each video when it appears: the managers explain facts you will need that are not in the exhibits. Videos and exhibits stay available once they appear. Keep full precision in intermediate calculations. Report per-kit dollar amounts to the nearest cent. Round total dollar amounts to the nearest dollar, with amounts ending in 50 cents rounded up. For break-even volume, round up to the next whole kit. Use the present-value factors in Exhibit 5. Later questions redisplay any earlier figures you need. Many questions refer to what a manager told you without repeating it, so watch each video, or read its transcript, before you answer.

Faculty demo note. As in MyLab, only Question 1 is open at first, and each question opens when the one before it is submitted. After each submission the page shows the correct answer and the named error behind any wrong choice. Use Show instructor answers to see every key, rationale, and video fact list, and Show all questions to see the whole case at once. The videos are not recorded yet; each has a placeholder and its full transcript.

Question 1: What the Highwick costs

Video 1 — Nora Lindgren, Founder and General Manager (about 2:18)

Ms. Lindgren explains why Perchwick built the Highwick, the decision she has to make, and what would change if the line were dropped.

Video placeholder: not yet recorded. The transcript below has the full script; the video and the transcript contain the same information.

Read the transcript: Nora Lindgren, Founder and General Manager

Thanks for helping with this. Let me give you some background first, because the numbers make more sense when you know who the Highwick is for.

I started Perchwick nine years ago with one idea. Cat furniture does not have to be carpet-covered plywood hiding in the corner. People share their homes with these animals. The furniture should work for both of them.

For years, our customers asked us for the same thing. A real tower. Tall, solid, something a cat will actually climb. Something that does not wobble when a twelve-pound cat jumps off the top, and that you do not mind seeing in your living room.

So we built the Highwick. A heavy wooden base. Platforms you can move around. A hideaway at the bottom. A cushion you can throw in the wash. And scratching panels you can replace when they are shredded. Which they will be.

We make all the wooden parts ourselves. We buy the cushion. Every kit gets checked before it ships flat, and the customer puts it together at home.

We started selling the Highwick in January as a one-year pilot. But I do not want to wait the whole year. I want to decide by the end of April whether it becomes a permanent part of Perchwick, so we can plan the rest of the year around it.

So let me be clear about what changes if I say no.

When we started the pilot, I hired a coordinator just for the Highwick. That person schedules Highwick production, deals with the cushion supplier, and handles Highwick customer questions. If I drop the Highwick, that position ends.

The same goes for the Highwick marketing. The ads, the photography, the product pages. Those contracts run month to month, and I can stop them.

What does not change is everything that was here before the Highwick. The building. The insurance. The office. The people who run the whole shop. All of that stays, with or without the Highwick.

Daniel has the cost information. Keisha has an offer from a retailer that needs an answer. Luis can tell you about the first quarter and our cushion problem. And Hannah runs assembly, for everything we build.

Look at all of it. Then tell me what you would do.

Instructor view: facts this video supplies

Perchwick makes all the wooden parts itself and buys the cushion; kits ship flat for home assembly.
The Highwick started in January as a one-year pilot; Ms. Lindgren wants an early decision, by the end of April, so Perchwick can plan the rest of the year.
The line coordinator was hired for the Highwick; the position ends if the line is dropped.
The Highwick marketing contracts run month to month and can be stopped.
The building, insurance, office and the people who run the whole shop stay with or without the Highwick.
Hannah runs assembly for everything Perchwick builds.

Related questions: Q1 (b, c), Q4, Q5, Q14, Q16, Q17. Setting: Her office off the shop floor; a finished Highwick behind her, a cat asleep in the hideaway.

Video 2 — Daniel Reyes, Controller (about 2:29)

Mr. Reyes walks through the Highwick cost report and explains how two of the later figures should be read.

Video placeholder: not yet recorded. The transcript below has the full script; the video and the transcript contain the same information.

Read the transcript: Daniel Reyes, Controller

Let me walk you through the cost report, because a few of these lines look alike and mean very different things.

The costs of making and selling a kit are stated per kit. A kit is one complete Highwick in the standard configuration. That is the unit for everything you will do.

The top of the report is what it takes to make a kit. The wood and hardware. The scratching panels. The cushion we buy. The carton and the printed instructions.

Then there is assembly labor. Our standard is a set number of hours per kit, at the wage rate we planned to pay for that work. The assembly crew is paid by the hour, and we schedule their hours around the kits we need to build.

At Perchwick, assembly means all the hands-on work after the machines cut the parts. Sanding. Building the hideaway and the platforms. Finishing. Test-fitting the tower, inspecting it, and packing the kit. Hannah can tell you how that actually went.

Variable overhead is finishing materials, cutting tools that wear out, and power for the machines. The more kits we make, the more of it we use.

Getting a website order to the customer is its own line. We ship every kit by parcel, to the customer’s door, and we pay a card fee on every order.

Now the bottom of the report. Our accounting system spreads the shop’s rent, insurance, salaried staff, and office costs over every product, at a rate per kit. That includes the people on salary who run the cutting machines. It looks like a per-kit cost. But those costs were here before the Highwick, and they would be here without it.

The design and prototype work is done. We paid for it last year. It is on the report so you can see the whole history of the project.

Two more things, for later.

When I say expected annual sales, I mean a normal full year after the launch. I am not saying we will make up the sales we missed this winter. I mean what a typical year should look like once the Highwick is fully on the market.

And when we buy equipment, Nora and I hold it to a required rate of return. You will see the rate on the proposal. That is the rate to use.

So before you use a number, ask yourself what it actually changes, for the decision in front of you.

Instructor view: facts this video supplies

The costs of making and selling a kit are per kit; fixed costs are per year; past design spending is a total. A kit is one complete tower in the standard configuration.
The assembly crew is paid by the hour and scheduled to match the kits built; the salaried staff who run the cutting machines are part of the allocated shop costs.
Assembly labor is a standard (hours per kit at a planned wage) covering all hands-on work after machine cutting, including finishing, test-fitting, inspection and packing.
Variable overhead rises with the number of kits made.
Every website order is shipped by parcel and incurs a card fee.
The allocation spreads rent, insurance, salaried staff and office costs at a rate per kit; those costs existed before the Highwick and would continue without it.
Design and prototype work was completed and paid for last year.
’Expected annual sales’ means a normal full year after launch, not a catch-up of missed sales.
Equipment is held to a required return set by Ms. Lindgren and Mr. Reyes, shown on the proposal.

Related questions: Q1 (c, d), Q2, Q3, Q5, Q9, Q12, Q13. Setting: A small conference room; the cost report on the table, a disassembled Highwick platform beside it.

Exhibit 1 — The Highwick: cost report for the pilot line

Item	Amount	Note
Regular selling price (Perchwick website)	$269 per kit	One kit is one complete tower in the standard configuration
Wood and hardware	$39.00 per kit	Birch plywood, maple posts, steel connectors
Scratching panels and sisal	$7.20 per kit
Cushion, purchased	$18.50 per kit	Supplier’s price, delivered to Perchwick
Packaging and printed instructions	$9.30 per kit	Carton, inserts, assembly booklet
Assembly labor	$28.60 per kit	Standard: 1.30 hours at $22 per hour
Variable manufacturing overhead	$10.60 per kit	Finishing materials, cutting tools, machine power, shop supplies
Shipping and payment processing	$33.60 per kit
Line coordinator, salary and benefits	$75,000 per year
Marketing	$165,000 per year	Online advertising, photography, product pages
Factory and administrative overhead	$19 per kit
Assembly supervisor, salary	$68,000 per year
Design and prototype development	$88,000

Question 1. For each item, indicate how it should be treated when deciding whether Perchwick should continue the Highwick line. Use Exhibit 1 and what Nora and Daniel told you. (Choose a treatment for each item. 4 points, 1 for each.)

Instructor key: a. Variable cost, relevant; b. Fixed cost, relevant; c. Not relevant to the decision to continue the line; d. Not relevant to the decision to continue the line (4 points). Exhibit 1 shows the per-kit overhead and the design spending without notes, so how to treat them comes from the videos. Item a stays a plain anchor.
Likely errors:

Item c, ’Variable cost, relevant’: takes a rate quoted per kit for a variable cost. Daniel said it spreads fixed shop and office costs over every product.
Item b, ’Not relevant’: treats a fixed salary as unavoidable, but Nora said the position ends if the line is dropped. ’Variable cost, relevant’ treats a salary as varying with kits.
Item d, ’Fixed cost, relevant’: treats completed spending as a cost of continuing. Daniel said it was paid for last year.

Cost classification (Ch. 2); cost behavior, fixed versus variable (Ch. 6); relevant, avoidable and sunk costs (Ch. 8) · Video dependencies: V1 (coordinator position ends with the line; the building, insurance, office and the people who run the whole shop stay); V2 (the per-kit overhead spreads fixed shop and office costs; design work done and paid for last year) · Estimated time: 3.5 min, not counting video · Version-specific inputs: None (constant across versions; the items are named without amounts)

Item	Treatment
a. Wood and hardware	Bought for each kit, so the cost rises and falls with kits made and stops if the line stops.
b. Line coordinator, salary and benefits	The same salary whatever the volume, so fixed. Nora said she hired the coordinator for the pilot and the position ends if she drops the Highwick, so it is avoidable and relevant.
c. Factory and administrative overhead, per kit	Quoted per kit, but Daniel said it spreads the shop’s rent, insurance, salaried staff and office over every product, and Nora said those costs stay with or without the Highwick. Dropping the line changes the spread, not the costs.
d. Design and prototype development	Daniel said the design and prototype work is done and was paid for last year. No alternative changes it: sunk.

Question 2: The variable cost of a kit

Exhibit 1 and the two videos from Question 1 stay available.

Question 2. Using Exhibit 1 and what Daniel told you about the cost report, what is the total variable cost of producing one Highwick kit and selling it through Perchwick’s website? (Select one. 1 point.)

a.$165.80
Named error: Adds the $19 factory and administrative overhead. Daniel said it spreads the shop’s rent, insurance, salaried staff and office over every product; it does not rise with kits. C + S + overhead = $165.80.
b.$113.20
Named error: Leaves out the $33.60 of shipping and payment processing, which Daniel said every website order incurs: C = $113.20.
c.$146.80
Keyed answer. C + S = wood $39.00 + scratching $7.20 + cushion $18.50 + packaging $9.30 + assembly labor $28.60 (1.30 × $22) + variable overhead $10.60 + shipping and payment processing $33.60 = $146.80. Daniel: the overhead per kit spreads fixed costs; every website kit is shipped and pays a card fee.
d.$132.20
Named error: Adds the $19 overhead and leaves out shipping and payment processing: $113.20 + $19 = $132.20. Daniel said the overhead is spread fixed cost and every website kit is shipped and pays a card fee.

Instructor key: c (1 point). C + S = wood $39.00 + scratching $7.20 + cushion $18.50 + packaging $9.30 + assembly labor $28.60 (1.30 × $22) + variable overhead $10.60 + shipping and payment processing $33.60 = $146.80. Daniel: the overhead per kit spreads fixed costs; every website kit is shipped and pays a card fee. Two facts from Video 2 decide the options: whether the per-kit overhead varies with kits, and that every website kit incurs shipping. Partly resistant only: shipping is a selling cost by default.
Variable costs of producing and selling a unit (Ch. 6); product versus period costs (Ch. 2) · Video dependencies: V2 (what the per-kit overhead is; every website order is shipped and incurs a card fee) · Estimated time: 3.0 min, not counting video · Version-specific inputs: wood, scratching, b, packaging, h, r, variable overhead, S, overhead per kit (distractors)

Question 3: What a kit earns

Exhibit 1 and the two videos from Question 1 stay available.

Question 3. The variable cost of producing a kit and selling it through the website is $146.80 (from Question 2). What is the contribution margin on one regular kit? (Select one. 1 point.)

a.$122.20
Keyed answer. CM = P − (C + S) = $269 − $146.80 = $122.20.
b.$155.80
Named error: Price less variable manufacturing cost only, P − C = $155.80; drops the selling cost the stem includes.
c.$103.20
Named error: Also deducts the $19 overhead: CM − $19 = $103.20. Full-cost thinking.
d.$136.80
Named error: Subtracts variable manufacturing cost and the $19 overhead from price, omitting website shipping and payment processing: $269 − $113.20 − $19 = $136.80. This does not calculate contribution margin.

Instructor key: a (1 point). CM = P − (C + S) = $269 − $146.80 = $122.20. The Highwick is a complete product, not an upgrade, so its contribution margin carries the full variable cost of making and selling a kit. Pure computation on a redisplayed figure: not screenshot-resistant.
Contribution margin per unit (Ch. 7) · Video dependencies: V1, V2 · Estimated time: 1.0 min, not counting video · Version-specific inputs: P and the Question 2 key (redisplayed); overhead per kit (distractors)

Question 4: Does the line pay for itself?

Exhibits and videos from earlier questions stay available above.

Exhibit 2 — The Highwick line: annual assumptions

Assumption	Amount
Contribution margin per regular kit (from Question 3)	$122.20
Line coordinator, salary and benefits, per year	$75,000
Marketing, per year	$165,000
Assembly supervisor, salary, per year	$68,000
Expected regular kit sales per year	5,000 kits

Regular kits are kits sold through Perchwick’s website. The forecast does not include the retailer’s proposal or sales of add-ons.

Question 4. Using Exhibit 2 and what Nora told you about what would change if the Highwick ended, how many regular kits per year must Perchwick sell for the Highwick line to break even? Round up to the next whole kit. (Select one. 1 point.)

a.2,521
Named error: Also counts the $68,000 assembly supervisor’s salary. Nora said Hannah runs assembly for everything Perchwick builds, so that salary stays if the Highwick ends.
b.1,171
Named error: Leaves out the marketing, which Nora said runs month to month and can be stopped, and counts the supervisor’s salary, which stays.
c.614
Named error: Leaves out the marketing, which Nora said she can stop, so it ends with the line.
d.1,964
Keyed answer. (Coordinator + marketing) ÷ CM = ($75,000 + $165,000) ÷ $122.20 = 1,963.99, rounded up to 1,964. Nora: the coordinator’s position ends and the marketing contracts can be stopped; Hannah runs assembly for everything Perchwick builds, so her salary stays.

Instructor key: d (1 point). (Coordinator + marketing) ÷ CM = ($75,000 + $165,000) ÷ $122.20 = 1,963.99, rounded up to 1,964. Nora: the coordinator’s position ends and the marketing contracts can be stopped; Hannah runs assembly for everything Perchwick builds, so her salary stays. A 2×2 of two facts from Video 1: whether the marketing ends with the line, and whether the supervisor’s salary does. The purchased-cushion arrangement is the baseline.
Break-even in units (Ch. 7); avoidable fixed costs (Ch. 8) · Video dependencies: V1 (coordinator position ends; marketing month to month; Hannah runs assembly for every product) · Estimated time: 1.8 min, not counting video · Version-specific inputs: coordinator, marketing, supervisor salary, CM (redisplayed in Exhibit 2)

Question 5: What the break-even means

Exhibit 2 stays available.

Question 5. Break-even is 1,964 kits (from Question 4), and Exhibit 2 shows expected regular sales of 5,000 kits a year. Using what Nora and Daniel told you, which statement best describes what these figures tell Ms. Lindgren? (Select one. 1 point.)

a.If the price and costs hold, sales could fall 3,036 kits short of this calendar year’s sales, once the winter’s missed sales are made up before the line stopped covering its own fixed costs, which would end if the line were dropped. The bigger question is whether customers keep buying at the planned price.
Named error: Daniel said expected annual sales mean a normal full year after the launch, not a promise to make up the winter’s missed sales.
b.If the price and costs hold, sales could fall 3,036 kits short of a normal full year’s sales after the launch before the line stopped covering its own fixed costs, which would end if the line were dropped. The bigger question is whether customers keep buying at the planned price.
Keyed answer. Margin of safety N − BE = 5,000 − 1,964 = 3,036 kits of a normal year (Daniel), against fixed costs that end with the line (Nora), read conditionally.
c.If the price and costs hold, sales could fall 3,036 kits short of a normal full year’s sales after the launch before the line stopped covering its own fixed costs, which would continue for the rest of the pilot year even if the line were dropped. The bigger question is whether customers keep buying at the planned price.
Named error: Nora said the coordinator’s position ends and the marketing contracts can be stopped if the line is dropped.
d.If the price and costs hold, sales could fall 3,036 kits short of this calendar year’s sales, once the winter’s missed sales are made up before the line stopped covering its own fixed costs, which would continue for the rest of the pilot year even if the line were dropped. The bigger question is whether customers keep buying at the planned price.
Named error: Both premises are wrong: Daniel said the forecast is a normal year, and Nora said these costs end with the line.

Instructor key: b (1 point). Margin of safety N − BE = 5,000 − 1,964 = 3,036 kits of a normal year (Daniel), against fixed costs that end with the line (Nora), read conditionally. Four near-copies, a 2×2 of the forecast’s meaning (Video 2) and whether the fixed costs end with the line (Video 1). No percentage is asked for.
Margin of safety as interpretation; avoidable fixed costs (Ch. 7, Ch. 8) · Video dependencies: V1 (costs end with the line); V2 (what expected annual sales mean) · Estimated time: 2.6 min, not counting video · Version-specific inputs: BE (redisplayed), N, N − BE inside every option

Question 6: The Brightwell Home order

Exhibits and videos from earlier questions stay available above.

Video 3 — Keisha Coleman, Sales Manager (about 1:55)

Ms. Coleman describes the Brightwell Home proposal and how it differs from a website order.

Video placeholder: not yet recorded. The transcript below has the full script; the video and the transcript contain the same information.

Read the transcript: Keisha Coleman, Sales Manager

Here is the offer I need you to look at.

Brightwell Home is a home-goods chain with stores across the Midwest. Their buyer saw the Highwick at a trade show, and she wants it in their stores.

But they want it in their own colors. An exclusive finish and cushion fabric that nobody else can buy. And they want their own packaging. A printed sleeve over our carton, their labels, and everything packed on pallets.

The quantity and the price are on the proposal. The price is well below what we charge on our website. That is normal. A retailer has to mark it up and still make money.

A few things work differently from a website order.

Brightwell sends its own trucks. They pick up full pallets at our dock, and they pay us by invoice. So there is no parcel shipping to anybody’s house, and no card fees.

The setup work only happens if we say yes. Matching their colors, making samples for them to approve, and the printing plates for the sleeve. If we turn them down, we never spend that money.

And this is one order. They have been clear that it is a single purchase for this year, not a standing contract. I would love for it to lead to more, but I cannot promise you that.

They have given us two choices for when the kits are finished. The first half of September, for their fall catalog. Or the first half of November, for the holidays.

They would prefer November. That is when people buy cat furniture as gifts. But they have told me September works if November does not.

I want this deal. It puts the Highwick in front of a lot of people who have never heard of us.

But Luis needs to tell you what those two windows look like in the finishing room. That part matters.

Instructor view: facts this video supplies

Brightwell Home wants the standard Highwick in an exclusive finish and cushion fabric, in its own sleeve and labels, on pallets.
The retailer collects full pallets at Perchwick’s dock and pays by invoice: no parcel shipping, no card fees.
Color matching, samples and printing plates are incurred only if the order is accepted.
It is a single order for this year, not a standing contract.
Finishing windows: first half of September or first half of November; the retailer prefers November but will take September.

Related questions: Q6, Q7, Q8, Q14, Q17. Setting: Perchwick’s small showroom; a Highwick sample in a gray finish and a printed retail sleeve on the table.

Video 4 — Luis Ortega, Production Manager (about 2:46)

Mr. Ortega explains what the two windows look like in the finishing room, what happened in the first quarter, and the problem with cushion deliveries.

Video placeholder: not yet recorded. The transcript below has the full script; the video and the transcript contain the same information.

Read the transcript: Luis Ortega, Production Manager

Let me start with Keisha’s two windows, because in the finishing room they are completely different.

September is easy. It is a slow month. We would have open rack time for the whole Brightwell order, and nobody else’s kits would have to wait.

November is the opposite. It is our busiest stretch of the year. Every year, holiday website orders fill the finishing room right up to the delivery deadlines, and we are planning on that again.

Every Highwick takes the same space on the racks while the finish cures, whoever it is for. So every Brightwell kit we finish in November is a website kit we cannot deliver in time. And a holiday customer who cannot get it by the date does not wait. That sale is gone.

People always ask why we cannot just build ahead. Website customers choose from several finishes when they order, just days before we build their kit, and we do not keep finished kits in stock. Brightwell will not release its final color until about two weeks before the window, and by then we are already busy with holiday orders.

We can cut and sand parts ahead, but that does not help, because the bottleneck is finishing and curing. Overtime does not fix it either. We already run long hours in November, and the finish still takes the time it takes. No outside shop can match our finishes, and we promise our holiday customers a delivery date.

Now, the first quarter. Before the public launch, we had a group of customers build test kits at home, and a lot of them got stuck. The instructions were not clear. So Nora held the public launch, the website listing and the ads, until the middle of February while we rewrote them. In January we sold only to existing customers we contacted directly.

The new instructions fixed it, and March met its original plan. One good month does not prove a whole year. But it tells me the launch delay explains most of the slow start. We will keep watching whether demand holds.

Last thing. Cushions. Our supplier keeps shipping late. When that happens, a kit can be finished, inspected and packed, except for the cushion, and it just sits. We have not lost an order over it, and nothing was waiting at the end of March. But customers notice when their ship date slips, and we cannot leave it the way it is.

We have choices. The supplier has offered to sign delivery guarantees, with penalties, at the same price. Another supplier has quoted about the same delivered price, with no setup charge, and their samples passed our quality checks. Or we make our own cushions. Daniel has the numbers on that.

Instructor view: facts this video supplies

September: open finishing capacity for the whole order; no other kits wait.
November: as every year, holiday website orders are expected to fill finishing capacity up to the delivery deadlines; each retailer kit takes the rack space of one website kit, and a holiday sale that misses its date is lost, not delayed.
The work cannot be done ahead: website customers choose among several finishes days before their kit is built, and there is no finished stock; the retailer’s final color arrives about two weeks before the window, when the room is already busy with holiday orders; prebuilt unfinished parts do not get past the finishing bottleneck. Overtime, outside finishers and moving customer dates are not options.
Test customers could not follow the instructions, so the public launch (website listing and ads) was held until the middle of February; January sales went only to existing customers.
The instructions were rewritten and March met its original plan; the launch delay explains most of the slow start, but one month does not prove a year.
Late cushions leave finished kits waiting; no orders lost and none waiting at the end of March, but the problem has to be fixed.
The current supplier offers delivery guarantees with penalties at the same price; a second supplier quotes about the same delivered price with no setup charge, and its samples passed Perchwick’s quality checks; or Perchwick makes its own.

Related questions: Q6, Q7, Q8, Q9, Q14, Q15, Q16, Q17. Setting: The finishing room; racks of curing platforms behind him.

Exhibit 3 — Brightwell Home proposal

Term	Amount	Note
Kits ordered	500 kits	Standard configuration in Brightwell Home’s exclusive finish and cushion fabric
Price Brightwell Home offers	$158 per kit	Perchwick’s website price is $269
Variable manufacturing cost per kit, including the purchased cushion	$113.20 per kit	Same materials, labor and overhead per kit as a regular kit
Brightwell sleeve, labels and pallet preparation	$6.40 per kit	Brightwell’s kits only
Shipping and payment processing	$33.60 per kit
One-time setup: color matching, sample approval, sleeve printing plates	$9,500
Finishing windows offered	Early September or early November	Finishing done in the first half of the month

Question 6. Using Exhibit 3 and what Keisha and Luis told you, by how much will Perchwick’s operating income change if it accepts Brightwell Home’s order for the September window? (Select one. 1 point.)

a.$51,400 decrease
Named error: Also subtracts the margin on 500 website kits (500 × $122.20). Luis said September has open rack time for the whole order, so no website kits are pushed aside.
b.$7,100 decrease
Named error: Charges $33.60 of shipping and payment processing to each Brightwell kit. Keisha said Brightwell’s trucks collect full pallets and it pays by invoice: no parcel shipping, no card fees.
c.$9,700 increase
Keyed answer. Q × (R − C − W) − K = 500 × ($158 − $113.20 − $6.40) − $9,500 = 500 × $38.40 − $9,500 = $9,700 increase. Keisha: Brightwell’s trucks collect the pallets and it pays by invoice, so no shipping or card fees. Luis: September has open rack time, so no website kits are pushed aside.
d.$68,200 decrease
Named error: Charges shipping and payment processing (Keisha: Brightwell collects and pays by invoice) and subtracts displaced website margin (Luis: September has open rack time).

Instructor key: c (1 point). Q × (R − C − W) − K = 500 × ($158 − $113.20 − $6.40) − $9,500 = 500 × $38.40 − $9,500 = $9,700 increase. Keisha: Brightwell’s trucks collect the pallets and it pays by invoice, so no shipping or card fees. Luis: September has open rack time, so no website kits are pushed aside. A 2×2 of two video facts: whether the website channel costs apply (Video 3) and whether September displaces website kits (Video 4). Same quantity, price and order costs as Question 7.
Special order with unused capacity; relevant costs (Ch. 8) · Video dependencies: V3 (pickup at the dock and payment by invoice; setup only if accepted; a single order); V4 (September has open finishing capacity) · Estimated time: 3.2 min, not counting video · Version-specific inputs: Q, R, C (redisplayed), W, K, S; CM (distractors)

Question 7: The Brightwell Home order, continued

Exhibit 3 and the two videos from Question 6 stay available.

Question 7. Using what Luis told you, what opportunity cost, if any, should Perchwick count if Brightwell Home’s order is finished in the November window instead? (Select one. 1 point.)

a.$61,100. Each Brightwell kit takes the rack space of one website kit, and a holiday sale that misses its date is lost, so the margin on those website kits is given up.
Keyed answer. Q × CM = 500 × $122.20 = $61,100. Luis: every Highwick takes the same rack space whoever it is for, and a holiday customer who cannot get it by the date does not wait. November net effect $9,700 − $61,100 = ($51,400).
b.$134,500. Each Brightwell kit takes the rack space of one website kit, and a holiday sale that misses its date is lost, so the revenue on those website kits is given up.
Named error: Lost revenue instead of lost contribution margin: Q × P = $134,500. The one option wrong on principle, kept for the outline’s named misconception.
c.$122,200. Brightwell’s exclusive finish takes twice as long to cure, so each Brightwell kit takes the rack space of two website kits, and those holiday sales are lost.
Named error: Luis said every Highwick takes the same space on the racks while the finish cures, whoever it is for.
d.$0. The website kits it pushes aside are finished in the first days of December instead, and those customers still buy, so no margin is given up.
Named error: Luis said a holiday customer who cannot get the kit by the date does not wait: that sale is gone.

Instructor key: a (1 point). Q × CM = 500 × $122.20 = $61,100. Luis: every Highwick takes the same rack space whoever it is for, and a holiday customer who cannot get it by the date does not wait. November net effect $9,700 − $61,100 = ($51,400). The displaced sale would have earned P − C − S, so the full contribution margin is the opportunity cost. Two near-copies differ from the key only in a fact Video 4 contradicts.
Opportunity cost; special order at full capacity (Ch. 8) · Video dependencies: V4 (November expected to be full with holiday website orders; one-for-one displacement; a missed holiday sale is lost; finishes are chosen too late to work ahead) · Estimated time: 2.0 min, not counting video · Version-specific inputs: Q, CM (on Exhibit 2), P

Question 8: The Brightwell Home order, continued

Exhibit 3 and the two videos from Question 6 stay available.

Question 8. Using what Keisha and Luis told you, what should Perchwick do about Brightwell Home’s proposal? (Select one. 1 point.)

a.Offer Brightwell Home the November window only. Brightwell Home will take either window, and November has room for the whole order without pushing aside any website kits.
Named error: Luis said November’s finishing room is full with holiday website orders.
b.Accept the November window, Brightwell Home’s first choice. Brightwell Home will not take September, and November’s finishing schedule has room for the whole order.
Named error: Keisha said Brightwell will take September if November does not work, and Luis said November is full.
c.Decline the order. Brightwell Home will take only November, and in November each kit would push aside a website kit whose margin the order cannot cover.
Named error: Keisha said Brightwell has told her September works if November does not.
d.Offer Brightwell Home the September window only. Brightwell Home will take either window, and September has room for the whole order without pushing aside any website kits.
Keyed answer. September adds $9,700 increase; November loses $51,400 after the opportunity cost. Keisha: Brightwell will take either window. Luis: September has open rack time.

Instructor key: d (1 point). September adds $9,700 increase; November loses $51,400 after the opportunity cost. Keisha: Brightwell will take either window. Luis: September has open rack time. Four near-copies built from two video facts: which window has room (Video 4) and whether Brightwell will take September (Video 3).
Special-order decision with and without a capacity constraint (Ch. 8) · Video dependencies: V3 (the retailer will take either window), V4 (capacity in each window) · Estimated time: 1.3 min, not counting video · Version-specific inputs: None (the conclusion is the same in every version by construction)

Question 9: The first quarter

Exhibits and videos from earlier questions stay available above.

Video 5 — Hannah Ellis, Assembly Supervisor (about 1:44)

Ms. Ellis explains how she staffed Highwick assembly during the first quarter.

Video placeholder: not yet recorded. The transcript below has the full script; the video and the transcript contain the same information.

Read the transcript: Hannah Ellis, Assembly Supervisor

Assembly on the Highwick is not like anything else we build. The connectors have to line up perfectly, because the customer is the one putting it together, at home, with nobody to help. If a hole is off, that is our mistake, sitting in their living room.

The plan assumed I would staff Highwick assembly with new hires at our starting wage.

That is not what I did.

The Highwick was brand new, the tolerances are tight, and these were the first kits our customers would ever see. I was not going to take chances. So I put my most experienced builders on the Highwick. People who have been here five or six years. They earn more per hour than a new hire, and on busy days a few of them worked overtime.

I do not set anybody’s pay. That is the company’s pay scale, and nobody got a raise this quarter. But I decide who works on which line, and putting my senior people on the Highwick was my call. I would make it again.

Here is the other side of it. They are fast. They know where every piece goes, and they get it right the first time. We did not skip anything to save time. Every kit still got the full test-fit and the inspection checklist, and we reworked fewer kits than the plan expected.

When we added up the quarter, we had used fewer hours than the standard allows for the kits we completed.

So when you look at my labor numbers, do not stop at one of them. Look at what we paid per hour. Look at how many hours we used. And think about why those two things happened together.

Instructor view: facts this video supplies

The plan assumed new hires at the starting wage; she assigned experienced builders instead, with some overtime.
The reason: a new product, tight tolerances, and the first kits customers would see.
She does not set pay rates (the company’s pay scale does) and nobody got a raise, but she decides who works on which line; the staffing was her decision.
Experienced builders were faster; every kit still got the full test-fit and inspection, and rework was below plan.
Hours used were below the standard allowed for the kits completed.

Related questions: Q10, Q11, Q15. Setting: The assembly benches; a half-built hideaway in front of her.

Exhibit 4 — The Highwick: first-quarter performance report (January–March)

Item	Static budget	Actual
Kits sold: January	360	140
Kits sold: February	400	270
Kits sold: March	440	450
Kits sold: first quarter	1,200	860
Kits completed (good output)	1,200	860
Selling price and nonlabor variable costs per kit	As budgeted	On budget
Contribution margin per kit (budgeted)	$122.20
Highwick contribution margin	$146,640
Assembly labor standard	1.30 hours per kit at $22 per hour
Assembly hours worked		1,050
Average assembly wage paid		$24.60 per hour
Assembly labor cost		$25,830

Kits completed equal kits sold: work in process and finished kits did not change during the quarter.

Question 9. Highwick contribution margin for the quarter came in well below the static budget of $146,640. Using Exhibit 4 and what Luis and Daniel told you, which statement best explains the shortfall and what it means for expected annual sales? (Select one. 1 point.)

a.Revenue fell short by 340 kits × $269 = $91,460. A gap that size shows customers want the Highwick far less than planned, so expected annual sales should be cut by more than a quarter.
Named error: Measures the shortfall in revenue rather than contribution margin (the one option wrong on principle) and draws a demand conclusion Luis’s account contradicts.
b.About $41,548 of contribution margin at budgeted rates was lost to volume (340 kits × $122.20). Unclear instructions held the public launch until mid-February and March met its plan, so the shortfall alone does not justify cutting expected annual sales.
Keyed answer. (B − A) × CM = (1,200 − 860) × $122.20 = $41,548 U. Luis: test customers got stuck on the instructions, the launch waited until mid-February, and March met its plan; one month does not prove a year.
c.About $41,548 of contribution margin at budgeted rates was lost to volume (340 kits × $122.20). Late cushions held up kits and cost Perchwick orders all quarter, so expected annual sales should be cut until cushion supply is fixed.
Named error: Luis said no order has been lost over late cushions, and nothing was waiting at the end of March.
d.About $41,548 of contribution margin at budgeted rates was lost to volume (340 kits × $122.20). Test customers found the price too high, so the launch waited while the price was reviewed, and expected annual sales should be cut.
Named error: Luis said test customers got stuck because the instructions were unclear; the launch waited while they were rewritten.

Instructor key: b (1 point). (B − A) × CM = (1,200 − 860) × $122.20 = $41,548 U. Luis: test customers got stuck on the instructions, the launch waited until mid-February, and March met its plan; one month does not prove a year. Static-budget CM $146,640; CM at budgeted rates for actual volume $105,092; difference $41,548 U. Three options share the correct amount and differ only in the cause, which Video 4 decides. The evidence supports keeping expected annual sales as a planning assumption; it does not show the missed winter sales will be recovered.
Static versus flexible budget; volume effect at budgeted contribution margin; using results to revisit a forecast (Ch. 9, Ch. 10) · Video dependencies: V4 (instructions unclear; launch held until mid-February; January sold only to existing customers; no orders lost to cushions; March met plan); V2 (expected annual sales mean a normal year) · Estimated time: 3.3 min, not counting video · Version-specific inputs: B, A, CM, P

Question 10: The first quarter, continued

Exhibit 4 and the video from Question 9 stay available.

Question 10. What is the assembly labor efficiency variance for the first quarter? (Select one. 1 point.)

a.$11,220 favorable
Named error: Standard hours from budgeted kits (1,200 × 1.30 = 1,560) instead of kits completed; counts the volume shortfall as efficiency.
b.$1,496 unfavorable
Named error: Correct amount, direction reversed: fewer hours than allowed is favorable.
c.$2,730 unfavorable
Named error: The labor rate variance, (AR − r) × AH = ($24.60 − $22) × 1,050, mistaken for the efficiency variance.
d.$1,496 favorable
Keyed answer. Standard hours allowed = A × h = 860 × 1.30 = 1,118. (AH − SHA) × r = (1,050 − 1,118) × $22 = $1,496 F.

Instructor key: d (1 point). Standard hours allowed = A × h = 860 × 1.30 = 1,118. (AH − SHA) × r = (1,050 − 1,118) × $22 = $1,496 F. Good output equals kits sold (Exhibit 4 note). Pure computation on shown figures: not screenshot-resistant.
Labor efficiency variance; standard hours allowed for actual output (Ch. 11) · Video dependencies: V5 (fewer hours than the standard allows for the kits completed) · Estimated time: 1.6 min, not counting video · Version-specific inputs: A, h, AH, r; B and AR (distractors)

Question 11: The first quarter, continued

Exhibit 4 and the video from Question 9 stay available.

Question 11. Using Exhibit 4 and what Hannah told you, what do the assembly labor results most likely indicate? (Select one. 1 point.)

a.Hannah’s choice to put experienced builders on the Highwick raised the average wage, but hours fell because the crew skipped test-fits to keep up. The favorable efficiency variance hides a quality problem she is responsible for.
Named error: Hannah said nothing was skipped: every kit still got the full test-fit and inspection checklist.
b.A company-wide raise pushed the average wage above standard, which Hannah does not control, while her experienced crew’s speed, with every kit fully inspected, cut the hours. She should be judged on the efficiency variance only.
Named error: Hannah said nobody got a raise; the average rose because she put her senior people on the line, which was her call.
c.Hannah’s choice to put experienced builders on the Highwick raised the average wage and, with every kit still fully test-fitted and inspected, cut the hours per kit. She is responsible for both variances, which should be judged together.
Keyed answer. One staffing decision, two effects: rate $2,730 U, efficiency $1,496 F, net $1,234 U in this data set. The key does not claim the decision saved money.
d.A company-wide raise pushed the average wage above standard, and the crew saved hours by skipping test-fits. The rate variance is outside Hannah’s control, and the favorable efficiency variance overstates how well her crew performed.
Named error: Hannah said nobody got a raise and nothing was skipped; putting senior builders on the line was her decision.

Instructor key: c (1 point). One staffing decision, two effects: rate $2,730 U, efficiency $1,496 F, net $1,234 U in this data set. The key does not claim the decision saved money. A 2×2 of two facts from Video 5: why the average wage rose and why the hours fell. Either net direction is consistent with the key.
Interpreting rate and efficiency variances together; responsibility accounting (Ch. 10, Ch. 11) · Video dependencies: V5 (she assigns builders; nobody got a raise; full test-fit and inspection on every kit) · Estimated time: 1.8 min, not counting video · Version-specific inputs: None

Question 12: The cushions

Exhibits and videos from earlier questions stay available above.

Exhibit 5 — Cushion equipment proposal

Item	Amount
Cutting table, foam saw, three industrial sewing machines and a cushion bagger, installed, including operator training	$104,000
Useful life / salvage value	5 years / none
Cushions needed per year (one per kit)	5,000
Purchased cushion, delivered (current cost, included in the variable manufacturing cost)	$18.50 per cushion
In-house cost per cushion: fabric, foam and zipper	$6.80
In-house cost per cushion: sewing labor (0.20 hour at $18 per hour)	$3.60
In-house cost per cushion: variable overhead	$0.80
Added fixed cash operating costs per year: part-time sewing lead, maintenance contract	$12,500
Required rate of return on equipment purchases	10%
Present value of an annuity of $1 for 5 years	8%: 3.993 · 10%: 3.791 · 12%: 3.605
Present value of $1 received at the end of 5 years	8%: 0.681 · 10%: 0.621 · 12%: 0.567

Assume the cash savings occur at the end of each year. Ignore income taxes; there is no change in working capital. The equipment would go in warehouse space that has no other planned use. With the added sewing staff, it can make a full year’s cushions to Perchwick’s current quality standard. It makes cushions only and does not change finishing capacity.

Question 12. If Perchwick buys the equipment and makes its own cushions, what are the annual net cash savings? (Select one. 1 point.)

a.$24,000
Keyed answer. In-house variable cost m = $6.80 + $3.60 + $0.80 = $11.20. N × (b − m) − O = 5,000 × ($18.50 − $11.20) − $12,500 = $24,000.
b.$80,000
Named error: Treats the whole purchase price as saved, ignoring the in-house variable costs: N × b − O = $80,000.
c.$12,612
Named error: Uses four times the first-quarter actual kits (4 × 860) instead of the expected annual sales Daniel described, retained as a planning assumption in Question 9.
d.$3,200
Named error: Deducts straight-line depreciation ($104,000 ÷ 5 = $20,800), which is not a cash flow.

Instructor key: a (1 point). In-house variable cost m = $6.80 + $3.60 + $0.80 = $11.20. N × (b − m) − O = 5,000 × ($18.50 − $11.20) − $12,500 = $24,000. Savings are documented cost differences only; no revenue is assumed from better deliveries. Pure computation on shown figures: not screenshot-resistant.
Relevant cash flows; make or buy (Ch. 8, Ch. 12) · Video dependencies: V2 (expected annual sales; required return); V4 (the problem must be fixed; alternatives) · Estimated time: 3.6 min, not counting video · Version-specific inputs: N, b, in-house materials, sewing hours and rate, variable overhead, O; A and I (distractors)

Question 13: The cushions, continued

Exhibit 5 stays available.

Question 13. Annual net cash savings from making cushions are $24,000 (from Question 12). What is the net present value of the cushion equipment? Use the present-value factors in Exhibit 5. (Select one. 1 point.)

a.$16,000
Named error: Ignores the time value of money: savings × 5 − I = $16,000.
b.($13,016)
Keyed answer. $24,000 × 3.791 − $104,000 = $90,984 − $104,000 = ($13,016).
c.($89,096)
Named error: Uses the single-sum factor (0.621) instead of the annuity factor: ($89,096).
d.$90,984
Named error: Present value of the savings without subtracting the investment: $90,984.

Instructor key: b (1 point). $24,000 × 3.791 − $104,000 = $90,984 − $104,000 = ($13,016). Payback here is 4.33 years, inside the five-year life, while NPV is negative. Pure computation: not screenshot-resistant.
Net present value with an annuity (Ch. 12) · Video dependencies: V2 (the required return is set by Nora and Daniel and shown on the proposal) · Estimated time: 1.3 min, not counting video · Version-specific inputs: Savings (redisplayed), AF and single-sum factor at r, I

Question 14: Your recommendation

Exhibits and videos from earlier questions stay available above.

Correct answers so far

These are the correct figures for the earlier questions, from your data set’s answer key, shown so that the remaining questions start from the right numbers whether or not you answered them correctly.

Figure	Correct figure
Contribution margin per regular kit	$122.20
Break-even volume	1,964 kits
Expected regular kit sales per year	5,000 kits
Brightwell Home order, September window: change in operating income	$9,700 increase
Brightwell Home order, November window: opportunity cost	$61,100
Brightwell Home order, November window: net effect	($51,400)
First-quarter volume shortfall in contribution margin (budgeted rates)	$41,548 U
Assembly wage rate, actual	$24.60 per hour
Assembly wage rate, standard	$22 per hour
Assembly labor efficiency variance	$1,496 F
Annual net cash savings from making cushions	$24,000
Cushion equipment NPV at 10%	($13,016)

Question 14. Based on everything you have analyzed and what Perchwick’s managers told you, which recommendation to Ms. Lindgren is best supported? (Select one. 1 point.)

a.Continue the line and offer Brightwell Home the September window only. Do not buy the equipment, and keep the current cushion supplier on its present terms; late cushions have not cost Perchwick any orders.
Named error: Luis said Perchwick cannot leave the cushion problem the way it is, even though no order has been lost yet.
b.Continue the line and offer Brightwell Home the September window only. Buy the cushion equipment; it earns more than the required return and ends the dependence on outside suppliers.
Named error: The equipment NPV of ($13,016) is negative, so it does not earn the required return; correct only in versions where NPV is positive. The one option wrong on the figures alone in this data set.
c.Continue the line and offer Brightwell Home the September window only. Do not buy the equipment; switch to the second supplier, even at a higher delivered price, because the current supplier will not guarantee delivery.
Named error: Luis said the current supplier offered guarantees at the same price and the second supplier quoted about the same delivered price.
d.Continue the line and offer Brightwell Home the September window only. Do not buy the equipment; hold the current supplier to its offered delivery guarantees at the same price, or switch to the second supplier.
Keyed answer. Correct here: the equipment NPV of ($13,016) is negative, so Perchwick does not buy it, and the delivery problem is still fixed through a supplier, as Luis described.
e.Continue the line and offer Brightwell Home the September window only. Buy the cushion equipment, because the second supplier’s samples failed Perchwick’s quality checks and the current supplier will not guarantee delivery.
Named error: Luis said the second supplier’s samples passed Perchwick’s quality checks and the current supplier offered guarantees.

Instructor key: d in this data set (equipment NPV negative). In versions where NPV is positive, the key is b (1 point). Every option continues the line and offers September only, as in Question 8. Key b when NPV is positive, d when negative. Options a, c and e misstate what Luis said about the cushion supply.
Integrated recommendation: CVP, special order, first-quarter reading, NPV, and an operating problem that must be addressed in either branch · Video dependencies: V1, V2, V4 · Estimated time: 3.2 min, not counting video · Version-specific inputs: NPV sign (branch)

Question 15: Your recommendation, continued

The ’Correct answers so far’ table stays available through Question 17.

Question 15. Using what the managers told you, which TWO pieces of evidence most strongly support continuing the Highwick line? (Select exactly two. 1 point; both selections must be correct.)

a.Brightwell Home’s order adds operating income if it is finished in the September window.
Named error: True, but a one-time order does not show that recurring sales will cover the line’s fixed costs. The one option wrong on principle.
b.The slow start came from late cushions holding up shipments, and those delayed orders were all filled in April.
Named error: Luis said no order has been lost over cushions and nothing was waiting at the end of March; the slow start was the launch.
c.Expected regular sales per year are well above the break-even volume.
Keyed answer. The quantitative case: the margin of safety.
d.Perchwick lowered the website price after the first quarter, and sales picked up in response.
Named error: No manager reported a price change; Luis said the launch waited for rewritten instructions.
e.The slow start followed a launch delay over unclear instructions, now rewritten, and March met its plan.
Keyed answer. Luis’s explanation; it supports keeping expected annual sales as a planning assumption.
f.Test customers who built kits at home rated the Highwick the easiest Perchwick product to put together.
Named error: Luis said a lot of test customers got stuck because the instructions were not clear.

Instructor key: c and e (1 point). The quantitative case: the margin of safety. Luis’s explanation; it supports keeping expected annual sales as a planning assumption. Every distractor but a is wrong only because of what a manager said or never said.
Evaluating evidence: quantitative (margin of safety) and qualitative (the launch explanation) · Video dependencies: V4 · Estimated time: 1.8 min, not counting video · Version-specific inputs: None

Select exactly two (0 selected).

Question 16: Your recommendation, continued

Exhibits and videos from earlier questions stay available above.

Question 16. Beyond the figures you have calculated, and using what the managers told you, which risk deserves the most weight in Ms. Lindgren’s decision? (Select one. 1 point.)

a.Customers may not keep buying at the planned price. Coordinator and marketing spending won’t fall automatically with sales while the line continues, and cushion equipment would need an upfront cash investment.
Keyed answer. The main uncertainty is sustained demand at the planned price. Fixed line spending does not adjust automatically with sales volume, although the coordinator and marketing costs are avoidable if management changes its commitments or discontinues the line. An equipment purchase would commit cash at the outset. The margin of safety shows how far sales can fall before the line’s fixed costs are no longer covered; it does not measure the probability of that decline.
b.Customers may not keep buying at the planned price, and the coordinator and marketing costs would continue through December even if the line were dropped, because both are committed for the pilot year.
Named error: Nora said the coordinator’s position ends if the line is dropped and the marketing contracts run month to month.
c.Cushion supply matters more than demand. Late cushions have already cost Perchwick orders, and the second supplier’s samples failed its quality checks, so the line cannot grow.
Named error: Luis said no order has been lost over cushions and the second supplier’s samples passed.
d.Staffing matters more than demand. Hannah plans to move her experienced builders back to other products before the holidays, so Highwick quality and delivery dates will slip.
Named error: Hannah said putting her senior people on the Highwick was her call and she would make it again.

Instructor key: a (1 point). The main uncertainty is sustained demand at the planned price. Fixed line spending does not adjust automatically with sales volume, although the coordinator and marketing costs are avoidable if management changes its commitments or discontinues the line. An equipment purchase would commit cash at the outset. The margin of safety shows how far sales can fall before the line’s fixed costs are no longer covered; it does not measure the probability of that decline. Three near-copies that each rest on something a manager contradicted.
Qualitative factors and risk; fixed line spending that is avoidable only by changing the line; an upfront investment (Ch. 6, Ch. 7, Ch. 12) · Video dependencies: V1 (coordinator and marketing end if the line is dropped); V4 (cushions); V5 (staffing) · Estimated time: 1.7 min, not counting video · Version-specific inputs: None

Question 17: Your recommendation, continued

Exhibits and videos from earlier questions stay available above.

Question 17. Why can Perchwick accept Brightwell Home’s order for September, decline the same order for November, and still conclude that the Highwick line is worth continuing? (Select one. 1 point.)

a.A one-time order with unused capacity must cover only its incremental costs, as in September. In November, when holiday orders fill the racks, it must also cover the revenue of the website sales it displaces, which are lost. The ongoing line must cover the coordinator and marketing over a year.
Named error: Lost revenue instead of lost contribution margin; the one option wrong on principle.
b.A one-time order with unused capacity must cover only its incremental costs, including website shipping and card fees, as in September. In November, when holiday orders fill the racks, it must also cover the margin of the website sales it displaces, which are lost. The ongoing line must cover the coordinator and marketing over a year.
Named error: Keisha said Brightwell’s trucks collect the pallets and it pays by invoice, so the order carries no website shipping or card fees.
c.A one-time order with unused capacity must cover only its incremental costs, as in September. In November, when holiday orders fill the racks, it must also cover the margin of the website sales it displaces, which are lost. The ongoing line must cover the coordinator, marketing and assembly supervisor over a year.
Named error: Nora said Hannah runs assembly for everything Perchwick builds, so her salary stays.
d.A one-time order with unused capacity must cover only its incremental costs, as in September. In November, when holiday orders fill the racks, it must also cover the margin of the website sales it displaces, which are lost. The ongoing line must cover the coordinator and marketing over a year.
Keyed answer. Three decisions, three relevant-cost comparisons; the regular kit’s contribution margin connects them.

Instructor key: d (1 point). Three decisions, three relevant-cost comparisons; the regular kit’s contribution margin connects them. Four near-copies of the case’s connecting idea; two differ from the key only in a fact the videos contradict.
Integration: one-time versus recurring decisions; capacity; opportunity cost (Ch. 8, Ch. 7) · Video dependencies: V1, V3, V4 · Estimated time: 2.2 min, not counting video · Version-specific inputs: None

Running total