Question
Kneller Co. manufactures and sells medals for winners in track and field and other events. Its manufacturing plant has the capacity to produce 23,000 medals
Kneller Co. manufactures and sells medals for winners in track and field and other events. Its manufacturing plant has the capacity to produce 23,000 medals each month; the current monthly production is 10,000 medals. The company normally charges $82 per medal. The cost data for the current level of production is shown below:
Variable costs: | ||
Direct materials | ps | 397,500 |
Direct labour | ps | 127,200 |
sales and administrative | ps | 20,600 |
Fixed costs: | ||
Manufacturing | ps | 118,800 |
sales and administrative | ps | 65,000 |
The company just received a special one-time order of 400 medals at $63 each. For this particular order, no variable selling or 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 request?Explain your reasoning.
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