4. Cherry LLC. manufactures and sells trophies for winners of athletic and other

Question

4. Cherry LLC. manufactures and sells trophies for winners of athletic and other events. Its cturing plant has the capacity to produce 16,000 trophies each month; current monthly production is 12,800 trophies. The company normally charges $113 per trophy. Cost data for the current level of production are shown below: Variable costs: Direct materials.... $614,400 .. $256,000 Selling and administrativeS35,840 Fixed costs: Manufacturing ...$294,400 S94,720 Selling and administrative... Cherry LLC. has just received a special one-time order for 1,200 trophies at $61 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 Cherry LLC. accept this special order? Why? (8 points)

Explanation / Answer

Calculation of Variable Cost per unit Particulars Cost Cost/unit Direct Material $ 6,14,400.00 $     48.00 Direct Labour $ 2,56,000.00 $     20.00 Variable Cost / Unit $     68.00 Though Cherry LLC, recieves one time order of 1200 trophies and it has enough spare production capacity to manufacture the same, but since the price quoted by buyer is $ 61 which is less than variable cost also to manufacture i.e. $ 68, proposal should not be manufactured.

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