Biello Company manufactures and sells medals for winners of athletic and other e

Question

Biello Company manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 20,000 medals each month; current monthly production is 19,000 medals. The company normally charges $60 per medal. Cost data for the current level of production are shown below.

Variable Costs Direct Materials $484,500 Direct

Labor $142,500

Selling and Administrative $135,038

Fixed Costs Manufacturing $185,275

Selling and Administrative $44,888

The company has just received a special one-time order for 700 medals at $40 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? Provide numerical support for your decision. (Points : 15)

Explanation / Answer

income at 19000 medals(before accepting special order):

Revenue(19000medals * $60) 1140000

less: Direct material 484500

direct labour 142500

selling and administrative 135038

fixed cost 185275

selling and administrative 44888

Income $147799   

income at 19000 medals plus 700 (after accepting special order):

revenue 1168000

less: direct material[484500 * 1168000 / 1140000] 496400

less: direct labour[142500*1168000/1140000] 146000

Income $525600

Note:- revenue = (19000 medals *$60 + 700 medals * $40)   

= 1140000 + 28000

= $1168000

yes, the company should accept this special order , because the income earned by selling medals from the special order is greater than the normal production sale.

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