Special order, activity-based costing. (CMA, adapted) The Award Plus Company 1. Operating income increase, manufactures medals for winners of athletic events and other contests. Its manufacturing

$190,000 plant has the capacity to produce 12,000 medals each month; current production and sales are 9,000 medals per month. The company normally charges $200 per medal. Cost information for the current activity level is as follows:

Award Plus has just received a special one-time-only order for 2,500 medals at $168 per medal. Accepting the special order would not affect the company’s regular business. Award Plus makes medals for its existing customers in batch sizes of 50 medals (180 batches x 50 medals per batch = 9000 medals). The special order requires Award Plus to make the medals in 25 batches of 100 each.
REQUIRED 1. Should Award Plus accept this special order? Explain briefly.
2. Suppose plant capacity was only 10,000 medals instead of 12,000 medals each month. The special order must either be taken in full or rejected totally. Should Award Plus accept the special order?
3. As in requirement 1, assume that monthly capacity is 12,000 medals. Award Plus is concerned that if it accepts the special order, its existing customers will immediately demand a price discount of $11 in the month in which the special order is being filled. They would argue that Award Plus’s capacity costs are now being spread over more units and that existing customers should get the benefit of these lower costs. Should Award Plus accept the special order under these conditions? Show all calculations.LO1

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Variable costs (vary with units produced): Direct materials Direct labour Variable costs (vary with number of batches): $ 360,000 405,000 Setups, materials handling, quality control 126,000* Fixed manufacturing costs 325,000 Fixed marketing costs 224,000 Total Costs *Costs of $126,000 are based on 180 batches at $700 per batch $1,440,000