Kneller Co. manufactures and sells medals for winners of athletic and other even

Question

Kneller Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 12,000 medals each month; current monthly production is 10,000 medals. The company normally charges $92 per medal. Cost data for the current level of production are shown below:

The company has just received a special one-time order for 400 medals at $76 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs. Assume that direct labor is a variable cost.

Required:

Should the company accept this special order?

Variable costs: Direct materials $ 446,000 Direct labor $ 142,700 Selling and administrative $ 23,100 Fixed costs: Manufacturing $ 133,300 Selling and administrative $ 73,000

Explanation / Answer

Relevant cost to consider while accepting the special order:-

Direct material cost per modal. (446000/10000)

since the total relevant cost per medal is less than the special order price.

So ,the company should accept the order.

Direct material cost per modal. (446000/10000)

44.6 Direct labour (142700/10000) 14.27 Total relevant cost (44.6 + 14.27) 58.87 Special order price per medal 76

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