5.2 TCO D) Manning Co. manufactures and sells trophies for winners of athletic a

Question

5.2 TCO D) Manning Co. manufactures and sells trophies for winners of athletic and other events. Its manufacturing plant has the capacity to produce 18,000 trophies each month; current monthly production is 15,300 trophies. The company normally charges $141 per trophy. Cost data for the current level of production are shown below:

Variable costs:
Direct materials…..$ 948,600
Direct labor…….$ 290,700
Selling and administrative,….$ 41,310
Fixed coasts:
Manufacturing ……$579,870
Selling and administrative…. $134,640

The company has just received a special one-time order for 900 trophies at $73 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs.

Required:

Should the company accept this special order? Why

Explanation / Answer

Material cost/ unit = 948600/15300 = 62 Labour costs/ unit = 290700/ 15300 = 19 Now the relevant costs/ unit for producing the 900 trophies are = 62 + 19 = 81/ trophy Since, the variable cost of 81 will not get covered by the price of 73, so the order should not be accepted

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