Exam 4Chs 10t2 150 pts Due June 16 Help Seve Exit Submi TB

Exam #4(Chs 10,t2) 150 pts. Due: June 16 ) Help Seve &Exit; Submi TB Problem Qu. 12-192 Kneller Co. manufectures and sells medals... Kneller Co manufactures and sels medals for winners 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 normaly charges Sto6 per medal Cost data for the current level of production are shown below points Variable costs: Direct nateriala Direct labor Belling and administrative 26,600 5513, 800 $164,400 Fixed costs $153, 400 Manufacturing Selling and acministrative 83,900 The company has just receved a special one-time order for 500 medals at $87 each. For this particular order, no variable seling and administrative costs would be incurred. This order would also have no eflect on fixed costs. Assume that direct labor is a variabie cost Required: Should the company accept this special order? O Accepted O Not accepted d or returned paper cp up FO FS F5

Solution

Only the direct materials and direct labor costs are relevant in this decision. To make the decision, we must compute the average direct materials and direct labor cost per unit Direct materials                5,13,800 Direct labor                1,64,400 Total                6,78,200 Current monthly production                    10,000 Average direct materials and direct labor cost per unit                            68 Since price on the special order is $87 per medal and the relevant cost is only $68, the company would earn a profit of $19 per medal. Therefore, the special order should be accepted