Problem -
Award Plus Co. manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 10,000 medals each month; current monthly production is 7,500 medals. The company normally charges $175 per medal. Variable costs and fixed costs for the current activity level of 75 percent follow:
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Current Production Costs
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Variable costs Manufacturing Labor
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$375,000
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Material
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$262,500
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Marketing
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$187,500
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Total variable costs
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$825,000
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Fixed costs
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Manufacturing
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$275,000
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Marketing
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$175,000
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Total fixed costs
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$450,000
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Total costs
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$1,275,000
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Additional information:
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Capacity (units) =
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10,000 units per month
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Current montly output =
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7,500
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Current usage of available capacity =
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75%
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Normal selling price per unit =
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$175.00
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Award Plus has just received a special one-time order for 2,500 medals at $100 per medal. For this particular order, no variable marketing costs will be incurred. Cathy Senna, a management accountant with Award Plus, has been assigned the task of analyzing this order and recommending whether the company should accept or reject it. After examining the costs, Senna suggested to her supervisor, Gerard LePenn who is the controller, that they request competitive bids from vendors for the raw materials since the current quote seems high. LePenn insisted that the prices are in line with other vendors and told her that she was not to discuss her observations with anyone else. Senna later discovered that LePenn is a brother-in-law of the owner of the current raw materials supply vendor.
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Special-order details:
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Number of units =
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2,500
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Selling price per unit =
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$100.00
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Requirements - Determine if Award Plus Co. should accept the special order and why.