ect- Inkenet Explore Exam #4 (Chs 10.12) 150 pts. Due June 16 Help Save&Exit; Su
ID: 2411190 • Letter: E
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ect- Inkenet Explore Exam #4 (Chs 10.12) 150 pts. Due June 16 Help Save&Exit; Submi TB Problem Qu. 12-192 Kneller Co. manufectures and sells medals. Kneller Co. monufactures and sells medals for wineners of athletic and other events. Its manufacturing plant has the capacity to produce 23,000 medals each month, current monthly production is 10,000 medals. The company normally charges $106 per medal. Cost data for the current level of production are shown beiow Variable costs Gesa, 513,800 164, 400 s 26, 600 pireet nateriala Direct labor Selling and adminiatrative vixed costa: Manufacturing $153, 400 5 83, 900 selling and adminiatrative seling and administrative costs wculd be incurred This order would aiso have no effect on twed costs. Assume that drect labor is a variable cost The company has just received a special one-ame order for 500 medals at $87 each For thes particular order, no variacle Required: Should the company accept this special order? O Accepted O Not accepted F6 F5Explanation / Answer
Direct Materials cost for 10,000 medals = $513,800;
Per medal cost of Direct Material = $513,800 / 10,000 = $51.38 per medal.
Direct Labor cost for 10,000 medals = $164,400
Per medal cost of Direct Labor = $164,400 / 10,000 = $16.44 per medal.
Relevant cost for additional order of 500 medals is only direct material and direct labor. Because the fixed cost is sunk cost and need not be incurred afresh for the special order. There are no variable selling and administration overhead for the special order. Therefore, the relevant cost for the special order is $67.82 ($51.38 + $16.44) per medal.
They are offering $87 for one medal.
Therefore, the company can earn additional contribution from 500 medals @ $19.18 per medal.
Therefore, the special order should be accepted.
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