TB Problem Qu. 12-192 Kneller Co. manufactures and sells medals... Kneller Co ma

Question

TB Problem Qu. 12-192 Kneller Co. manufactures and sells medals... Kneller Co manufactures and sells medals for winners of athletic and other 28,000 medals each month; current monthly production is 10,000 medals. The company normally charges $118 per medal Cost data for the current level of production are shown below ls medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce le costs: $572,000 $183,800 s 29,688 Direct labor Fixed costs: $120,700 5 93,400 has just received a special one-time order for 600 medals at $98 each. For this particular order, no variable selling and costs would be incurred. This order would also have no effect on fixed costs Assume that direct labor is a variable cost Should the company accept this special order?

Explanation / Answer

1)

Direct materials and direct labor are relevant in this decision.Fixed manufacturing overhead , Fixed selling and administrative costs and Variable selling and administrative costs are irrelevant in this decision. The average direct materials and direct labor cost per unit = Direct Materials $572,000.00 Direct Labour $183,000.00 Total $755,000.00 Current monthly production 10000 Average direct materials and direct labor cost per unit = $755,000/10,000 $75.50 The special order should be accepted since price on the special order is $98 per medal and the relevant cost is only $75.50,the company would earn a profit of $22.50 per medal.

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