Kneller Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 22,000 medals each month; current monthly production is 10,000 medals. The company normally charges $116 per medal. Cost data for the current level of production are shown below: Variable costs: Direct materials $ 562,300 Direct labor $ 180,000 Selling and administrative $ 29,200 Fixed costs: Manufacturing $ 168,500 Selling and administrative $ 92,200
Kneller Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 22,000 medals each month; current monthly production is 10,000 medals. The company normally charges $116 per medal. Cost data for the current level of production are shown below: Variable costs: Direct materials $ 562,300 Direct labor $ 180,000 Selling and administrative $ 29,200 Fixed costs: Manufacturing $ 168,500 Selling and administrative $ 92,200
Chapter6: Activity-based, Variable, And Absorption Costing
Section: Chapter Questions
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Kneller Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 22,000 medals each month; current monthly production is 10,000 medals. The company normally charges $116 per medal. Cost data for the current level of production are shown below:
Variable costs: | ||
Direct materials | $ | 562,300 |
Direct labor | $ | 180,000 |
Selling and administrative | $ | 29,200 |
Fixed costs: | ||
Manufacturing | $ | 168,500 |
Selling and administrative | $ | 92,200 |
The company has just received a special one-time order for 500 medals at $103 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?
Expert Solution
Step 1
Relevant cost to consider:
Direct material cost per modal. (562,300/10000) | 56.23 |
Direct labour (180,000/10000) | 18 |
Total relevant cost (56.23 + 18) | 74.23 |
Special order price per medal | 103 |
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