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659 Chapter 14 Decision Making Relevant Costs and Benefits Winner's Circle, Inc., manufactures medals for winners of athletic events and other contests. Its manu- facturing plant has the capacity to produce 10.000 medals each month. Current monthly production is 7.500 medals. The company normally charges $175 per modal. Variable costs and fixed costs for the current activity level of 75 percent of capacity are as follows: Problem 14-56 Special Order: Ethics (LO 14-3, 144, 14-5) 2. Accepting the special order wat in a to additional contribution margin of 537500 Production Costs $ 375.000 262.500 187.500 5 825,000 Variable costs Manufacturing Direct labor Direct material Marketing Total variable costs Fored costs Manufacturing Marketing Totalled costs Total costs Variable cost per un Fixed cost per unit Average unit cost $ 275,000 175.000 $ 450,000 $1.275,000 5 110 60 170 Winner's Circle has just received a special one-time order for 2,500 medals at $100 per medal. For this particular order, no variable marketing costs will be incurred. Cathy Donato, a management accountant with Winner's Circle, has been assigned the task of analyzing this order and recommend- ing whether the company should accept or reject it. After examining the costs, Donato suggested to her supervisor, Gerard LePenn, who is the controller, that they request competitive bids from vendors for the raw material as the current quote seems high. LePenn insisted that the prices are in line with other vendors and told her that she was not to discuss her observations with anyone else. Donato later discovered that LePenn is a brother-in-law of the owner of the current raw material supply vendor Required: 1. Identify and explain the costs that will be relevant to Cathy Donato's analysis of the special order being considered by Winner's Circle, Inc. 2. Determine if Winner's Circle should accept the special order. In explaining your answer, compute both the new average unit cost and the incremental unit cost for the special order. 3. Discuss any other considerations that Donato should include in her analysis of the special order. 4. What steps could Donato take to resolve the ethical conflict arising out of the controller's insistence that the company avoid competitive bidding? 5. Build a spreadsheet: Construct an Excel spreadsheet to solve requirement 2. Show how the solu- tion will change if the sales price is $170 per medal