The Medal Plus Company manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 12,000 medals each month. Current production and sales are 10,000 medals per month. The company normally charges $300 per medal. Cost information for the current activity level is as follows:

variable costs that vary with number of units produced

Direct materials

$600,000

Direct manufacturing labor

450,000

Variable costs (for setups, materials handling, quality control, etc.)

that vary with number of batches, 200 batches x $1,500 per batch

300,000

Fixed manufacturing costs

250,000

Fixed marketing costs

50,000

Total costs

$1,650,000

Requirements

Should Medal accept this special order? Show your calculations.

2.

Suppose plant capacity were only 11 comma 00011,000 medals instead of 12 comma 00012,000 medals each month. Medal Plus must accept or reject the special order in full. Should Medal Plus accept the special order? Show your calculations.

3.

As in requirement 1, assume that monthly capacity is 12,000 medals. Medal Plus is concerned that if it accepts the special order, its existing customers will immediately demand a price discount of $20 in the month in which the special order is being filled. Existing customers would argue that Medal Plus's capacity costs are now being spread over more units and that they should get the benefit of these lower costs. Should Medal Plus accept the special order under these conditions? Show your calculations.