The Award Plus Company manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 10,000 medals each month. Current production and sales are 7,500 medals per month. The company normally charges $150 per medal. Cost information for the current production level of 7,500 medals is as follows:

Variable costs that vary with number of units produced

Direct materials $ 262,500

Direct labor 300,000

Variable manufacturing overhead 75,000

Fixed manufacturing overhead 275,000

Fixed marketing costs 175,000

Total costs $ 1,087,500

Fixed manufacturing overhead and fixed marketing costs could be used to serve up to 10,000 medals each month. Award Plus has just received a special one-time-only order for 2,500 medals at $100 per medal. Accepting the special order would not affect the companys regular business.

Required:

Q1:

(5 points) How much the special order will increase (decrease) the operating income from what it would be when only 7,500 medals are produced and sold at $150 per medal? Should Award Plus accept this special order? Show calculations

Q2:

Suppose plant capacity were only 9,000 medals instead of 10,000 medals each month. The special order must either be taken in full (i.e.,6,500 medals for existing customers and 2,500 medals for the special order) or be rejected completely (i.e., producing 7,500 medals for only existing customers).

• (7 points) How much the special order will increase (decrease) the operating income from what it would be when only 7,500medals are produced and sold at $150 per medal? Show your calculations.
• (3 points) If Award Plus decides to accept the special order, what should be the minimum special order price per unit for the firm to at least maintain the same profit as that from selling 7,500 medals at $150 per medal?