Albert Co. manufactures and sells trophies for winners of athletic and other eve

Question

             Albert Co. manufactures and sells trophies for winners of athletic and other events. Its manufacturing 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

Direct labor.................................

$256,000

Selling and administrative..........

$35,840

Fixed   costs:

Manufacturing............................

$294,400

Selling and administrative..........

$94,720

            The company 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. Should the company accept this special order? Why?  Show calculations to support your recommendation.

  

     

Variable   costs:

     

     

     

Direct materials..........................

     

$614,400

     

     

Direct labor.................................

     

$256,000

     

     

Selling and administrative..........

     

$35,840

     

     

Fixed   costs:

     

     

     

Manufacturing............................

     

$294,400

     

     

Selling and administrative..........

     

$94,720

  

Explanation / Answer

Hi,

Please find the answer as follows:

Sales (Special Order) = 1200*61 = 73200

Less Variable Costs:

Direct Material = 614400*1200/12800 = 57600

Direcl Labor = 256000*1200/12800 = 24000

Loss from Special Order = -8400

The special order should not be accepted as it will result in a loss.

Thanks.

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