5. (TCO H) Simpson Company manufactures and sells trophies for winners of athlet

Question

5. (TCO H) Simpson Company manufactures and sells trophies for winners of athletic and other events. Its manufacturing plant has the capacity to produce 20,000 trophies each month; current monthly production is 19,100 trophies. The company normally charges $42 per trophy. Cost data for the current level of production are shown below.

Variable Costs


  
Direct Materials
$270,940

Direct Labor
$96,900

Selling and Administrative
$20,550
Fixed Costs


  
Manufacturing
$125,000

Selling and Administrative
$75,000

The company has just received a special one-time order for 800 trophies at $30 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

Explanation / Answer

Calculation of per unit costs Direct Materials270940/19100 14.19 Direct Labor96900/19100 5.07 Special order 800 Trophies Per unit Total Selling price 30 24000 Less: Variable Costs Direct materials 14.19 11352 Direct Labor 5.07 4056 Total Variable Costs 19.26 15408 Contribution (Selling price- Contribution) 10.74 8592 As the special order provides positive contribution towards meeting the fixed costs, it can be accepted

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