Client Letter Scenario: You attend church with a good frie…
Client Letter Scenario: You attend church with a good friend Tony Maroni, and after the Sunday morning service he asked for advice. You are a successful financial planner and accountant, and people at the church seem to always seek your free counsel. Tony’s Trophy Shop has been struggling to stay in business since the economic shutdown caused by the coronavirus. Currently, he is selling 25,600 trophies each year at a price of $12 each to make a meager profit. He has plenty of excess capacity, but new market opportunities are scarce. Last week, Skip Tumalu contacted Tony and asked him to provide 450 trophy’s for the elementary school track meet that will be held this year at the local university, Watsamata U. Skip needs 450 trophies since it is a Federal mandate that all athletes receive a participation award. He also told Tony that this is the last year of athletics at any elementary school due to state budget cuts and wanted to make it a special event for the children. Skip is able to get the trophies from China for $7 each, but was hoping to keep the business local. His father was a marine and told him to always buy American. If Tony can match the $7 price, the order is his. Tony’s bookkeeper, M. Besler, told him not to take the order since his costs to produce a trophy exceeds the $7 special order price. However, Tony was still considering taking the order at a loss in order to help the school deal with the budget crisis. He once heard from a wise CPA that you should use the numbers to help make decisions – don’t let the numbers make the decision for you. M. Besler used the following information to arrive at his conclusion: Cost of Goods Manufactured: Total Cost Unit Cost Direct Material 40,960 1.60 Direct Labor 44,800 1.75 Manufacturing Overhead* 106,240 4.15 Total Manufacturing Costs 192,000 7.50 * $90,880 of the Manufacturing Overhead is fixed. The bookkeeper also pointed out that according to the employment agreement with Sal Vadore, a $0.50 per unit commission must be paid on all sales. According to M. Besler, commissions are period expense (not product costs) and therefore irrelevant to the analysis. Required: Prepare a well written letter to Tony Maroni, at 246 Ate Street, San Diego, CA, that identifies all of the relevant issues, addresses the reasonableness of M.Besler’s conclusion, and provides viable alternatives and recommendations for consideration. Limit your response to 500 words. The letter will be graded and assessed on clarity and completeness.