Question
Mortal Jack Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 12,000 medals each
Mortal Jack 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.
Required:
- . Should the company accept this special order? Why? Present a differential analysis to support your answer.
- Even if the quantified result presents an increase in net income for Mortal Jack Co., what would be circumstances that the company will not accept the order?
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