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.

With One-Time Only Special Order Under Reduced Plant Capacity 5,500 Units

Suppose plant capacity were only 5,500 medals instead of 6,000 medals each month. Award Plus must (accept or reject) the special order in full. Should
Award Plus accept the special order? Show your calculations. Complete the analysis below to determine if Award Plus should accept the special order under this scenario.

Based on the calculations under this scenario, Award Plus should the one-time-only special order under the reduced capacity because accepting the order operating income by $---.

With One-Time Only Special Order Under Reduced Plant Capacity 5,500 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

Solution 1a:

As net income will increase by $120,000 on accepting special order therefore special order must be accepted.

Solution 1b:

Award plus should accept the special order under reduced capacity because accepting the order will increase operating income by $62,500.

Differential Analysis - Award Plus Company - Reject Special Order (alt 1) or Accept Special Order (Alt2) - No capacity constraints Particulars Reject Special Order (Alt1) Accept Special Order (Alt2) Differential effect on income (Alt 2) Details Amount Details Amount Revenue 5000*$200 $1,000,000.00 [(5000*$200) + (1000*$175)] $1,175,000.00 $175,000.00 Costs: Direct Material 5000*$30 $150,000.00 6000*$30 $180,000.00 $30,000.00 Direct Labor 5000*$15 $75,000.00 6000*$15 $90,000.00 $15,000.00 Variable cost vary with batches 200*1000 $200,000.00 210*$1000 $210,000.00 $10,000.00 Fixed manufacturing cost $200,000.00 $200,000.00 $0.00 Fixed marketing cost $25,000.00 $25,000.00 $0.00 Income / (Loss) $350,000.00 $470,000.00 $120,000.00

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