The Award Plus Company manufactures medals for winners of athletic events and ot

Question

The Award Plus Company manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 6,000 medals each month. Current production and sales are 5,000 medals per month. The company normally charges $200 per medal. Cost information for the current activity level is as follows:
Variable costs that vary with number of units produced
Direct materials -------------------- $150,000
Direct manufacturing labor---------75,000
Variable costs (for setups, materials handling, quality control, etc.) that vary with number of batches, 200 batches x $1,000 per batch ---------- 200,000
Fixed manufacturing costs --------------- 200,000
Fixed marketing costs-------------------- 25,000
Total costs --------------------------------$650,000
Award Plus has just received a special one-time-only special order for 1,000 medals at $175 per medal. Accepting the special order would not affect the company's regular business. Award PlusAward Plus makes medals for its existing customers in batch sizes of 25 medals (200 batches x 25 medals per batch = 5,000 medals). The special order requires Award Plus to make the medals in 10 batches of 100 each.
1a. Should Award Plus accept this special order? Show your calculations. Begin by completing an analysis, and start by showing the computation of the company's operating income without the special order. Next, calculate operating income with the special order, and then calculate the differences between the two columns.

Without
One-Time Only Special Order 5,000 Units

Difference

1,000 Units

Based on above calculations, Award Plus should ---- (Accept or Reject) the one-time-only special order if it has no long-term implications because accepting the order ----(decreases or Increases) operating income by $----.

Without
One-Time Only Special Order 5,000 Units

With
One-Time Only Special Order 6,000 Units

Difference

1,000 Units

Revenues ---- ----- --- Variable Cost ---- Direct Material ----- ------ ----- Direct manufacturing labor ------ ------ ------ Batch manufacutring cost ----- ------- ----- Fixed Cost ---- Fixed manufacturing cost ------ ------ ----- Fixed marketing cost ----- ------ ----- Total cost ------ ------ ------ Operating Income ------ ------- -------

Explanation / Answer

Direct Material cost per unit = 150,000 /5000 = $30

Direct Labour cost per unit = 75000/5000 = $15

Variable Cost per batch = $1000

Based on above calculations, Award Plus should Accept the one-time-only special order if it has no long-term implications because accepting the order Increases operating income by $120,000.

Without
One-Time Only Special Order 5,000 Units With
One-Time Only Special Order 6,000 Units Difference

1,000 Units Revenues 1000000 1175000 175000 Variable Cost Direct Material 150000 180000 30000 Direct manufacturing labor 75000 90000 15000 Batch manufacutring cost 200000 210000 10000 Fixed Cost Fixed manufacturing cost 200000 200000 Fixed marketing cost 25000 25000 Total cost 650000 705000 55000 Operating Income 350000 470000 120000

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