The Gold Plus Company manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 11,000 medals each month. Current production and sales are 10,000 medals per month. The company normally charges $150 per medal. Cost information for the current activity level is as follows:

Gold Plus has just received a special one-time-only order for 1,000 medals at $100 per medal. Accepting the special order would not affect the company’s regular business. Gold Plus makes medals for its existing customers in batch sizes of 50 medals (200 batches x 50 medals per batch = 10,000 medals). The special order requires Gold Plus to make the medals in 25 batches of 40 medals.

Required

1. Should Gold Plus accept this special order? What other factors might Gold Plus consider before accepting the special order? Show your calculations.
2. Suppose plant capacity were only 10,500 medals instead of 11,000 medals each month. The special order must either be taken in full or be rejected completely. Should Gold Plus accept the special order? Show your calculations.
3. As in requirement 1, assume that monthly capacity is 11,000 medals. Gold Plus is concerned that if it  accepts the special order, its existing customers will immediately demand a price discount of $10 in the month in which the special order is being filled. They would argue that Gold Plus’s capacity costs are now being spread over more units and that existing customers should get the benefit of these lower costs. Should Gold Plus accept the special order under these conditions? Show your calculations.

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Variable costs that vary with number of units produced Direct materials Direct manufacturing labor Variable costs (for setups, materials handling, quality control, and so on) that vary with number of batches, 200 batches × $500 per batch Fixed manufacturing costs Fixed marketing costs Total costs $ 30,000 375,000 100,000 300,000 275,000 $1,400,000