Biello Co. manufactures and sells medals for winners of athletic and other event
ID: 2353233 • Letter: B
Question
Biello Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 15,000 medals each month; current monthly production is 14,250 medals. The company normally charges $115 per medal. Cost data for the current level of production are shown below: Variable costs: Direct materials 969,000 Direct labor 270,750 Selling and administrative 27,075 Fixed Costs: Manufacturing 350,550 Selling and administrative 89,775 The company has just received a special one-time order for 600 medals at $102 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? Why?Explanation / Answer
Biello Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 15,000 medals each month; current monthly production is 14,250 medals. The company normally charges $115 per medal. Cost data for the current level of production are shown below: Variable costs:
Direct materials 969,000
Direct labor 270,750
Selling and administrative 27,075
Fixed Costs:
Manufacturing 350,550
Selling and administrative 89,775
The company has just received a special one-time order for 600 medals at $102 each.
(624750 +306000 )/14250 = 65.31
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? Why?
Since price on the special order is $102 per medal and the relevant cost is only $65.31,
the company
would earn a profit of $36.69 per medal. Therefore, the special order should be accepted
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