Question
Kneller Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 12,000 medals each month;
Kneller Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 12,000 medals each month; current monthly production is 9,600 medals. The company normally charges $99 per medal. Cost data for the current level of production are shown below:
| Variable costs: | ||
| Direct materials | $ | 480,000 |
| Direct labor | $ | 153,600 |
| Selling and administrative | $ | 24,960 |
| Fixed costs: | ||
| Manufacturing | $ | 144,000 |
| Selling and administrative | $ | 78,720 |
The company has just received a special one-time order for 500 medals at $89 each. For this particular order, no variable selling and 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 order? Why?
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