Biello Company manufactures and sells medals for winners of athletic and other e
ID: 2421054 • Letter: B
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.
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
Explanation / Answer
Additional order
Amount
Units
Per unit
Amount
Units
Per unit
Sales (A)
1140000
19000
60
Sales (A)
28000
700
40
Variable cost (B)
762038
Variable cost (B)
23100
Direct material
484500
19000
25.50
Direct material
17850
700
25.50
Direct labour
142500
19000
7.50
Direct labour
5250
700
7.50
Selling and administrative exp
135038
19000
7.11
Selling and administrative exp
0
700
-
Contribution (C )=(A)-(B)
377962
Contribution (C )=(A)-(B)
4900
Fixed cost (D)
230163
Fixed cost (D)
0
Manufacturing
185275
Manufacturing
0
Selling and administrative exp
44888
Selling and administrative exp
0
Profit (C )-(D)
147799
Profit (C )-(D)
4900
Additional order will give net income of $4900 hence the order should be accepted
Additional order
Amount
Units
Per unit
Amount
Units
Per unit
Sales (A)
1140000
19000
60
Sales (A)
28000
700
40
Variable cost (B)
762038
Variable cost (B)
23100
Direct material
484500
19000
25.50
Direct material
17850
700
25.50
Direct labour
142500
19000
7.50
Direct labour
5250
700
7.50
Selling and administrative exp
135038
19000
7.11
Selling and administrative exp
0
700
-
Contribution (C )=(A)-(B)
377962
Contribution (C )=(A)-(B)
4900
Fixed cost (D)
230163
Fixed cost (D)
0
Manufacturing
185275
Manufacturing
0
Selling and administrative exp
44888
Selling and administrative exp
0
Profit (C )-(D)
147799
Profit (C )-(D)
4900
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