Question
The Goal One Company manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 11,000 medals each
The Goal One Company manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 11,000 medals each month. Current production and sales are 10,000 medals per month. The company normally charges $250 per medal. Cost information for the current activity level is as follows:
Goal One has just received a special one-time-only order for 1,000 medals at $200 per medal. Accepting the special order would not affect the company's regular business. Goal One makes medals for its existing customers in batch sizes of 200 medals (50 batches x 200 medals per batch =10 comma 000
medals). The special order requires Goal One to make the medals in 8 batches of 125 medals.
Requirement 1. Should Goal One accept this special order? Show your calculations. Begin by completing an analysis, and start by showing the computation of the company's operating income without the special order. Next, calculate operating income with the special order, and then calculate the differences between the two columns. (For amounts with no change, make sure to enter "0" in the appropriate cells of the Difference column.)
Without | ||
One-Time Only | ||
Special Order | ||
10,000 Units | ||
Revenues | $2,500,000 | |
Variable costs: | ||
Direct materials | $400,000 | |
Direct manufacturing labor | 350,000 | |
Batch manufacturing costs | 40,000 | |
Fixed costs: | ||
Fixed manufacturing costs | 75,000 | |
Fixed marketing costs | 150,000 | |
Total costs | $1,015,000 | |
Operating income | $1,485,000 |
With |
One-Time Only |
Special Order |
11,000 Units |
$2,700,000 |
$440,000 |
385,000 |
46,400 |
75,000 |
150,000 |
$1,096,400 |
$1,603,600 |
Difference |
1,000 Units |
$200,000 |
$40,000 |
35,000 |
6,400 |
0 |
0 |
$81,400 |
$118,600 |
Based on the above calculations, Goal One should accept the one-time-only special order if it has no long-term implications because accepting the order increases operating income by
$118600
.
Requirement 2. Suppose plant capacity were only 10,500 medals instead of 11,000 medals each month. The special order must either be taken in full or be rejected completely. Should Goal One accept the special order? Show your calculations. Complete the analysis below to determine if Goal One should accept the special order under this scenario.
With One-Time | ||
Only Special Order | ||
Under Reduced | ||
Plant Capacity | ||
10,500 Units | ||
Revenues= | ||
Variable costs: | ||
Direct materials= | ||
Direct manufacturing labor= | ||
Batch manufacturing costs= | ||
Fixed costs: | ||
Fixed manufacturing costs= | ||
Fixed marketing costs= | ||
Total costs= | ||
Operating income= |
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