Winners Circle, Incorporated, manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 2,500 medals each month. Current monthly production is 1,875 medals. The company normally charges $515 per medal. Variable costs and fixed costs for the current activity level of 75 percent of capacity are as follows:

Production Costs
Variable costs:
Manufacturing:
Direct labor	$ 262,500
Direct material	196,875
Marketing	140,625
Total variable costs	$ 600,000
Fixed costs:
Manufacturing	$ 207,150
Marketing	130,350
Total fixed costs	$ 337,500
Total costs	$ 937,500
Variable cost per unit	$ 320
Fixed cost per unit	180
Average unit cost	$ 500

Winners Circle has just received a special one-time order for 625 medals at $290 per medal. For this particular order, no variable marketing costs will be incurred. Cathy Donato, a management accountant with Winners Circle, has been assigned the task of analyzing this order and recommending whether the company should accept or reject it. After examining the costs, Donato suggested to her supervisor, Gerard LePenn, who is the controller, that they request competitive bids from vendors for the raw material as the current quote seems high. LePenn insisted that the prices are in line with other vendors and told her that she was not to discuss her observations with anyone else. Donato later discovered that LePenn is a brother-in-law of the owner of the current raw-material supply vendor.

1. Which of the following costs will be relevant to Cathy Donatos analysis of the special order being considered by Winners Circle, Incorporated?

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• Fixed marketing cost.
• Variable costs of labor and material.
• Fixed manufacturing costs.
• Variable marketing cost.

2-a. Compute both the new average unit cost and the incremental unit cost for the special order.

2-b. Should Winners Circle, Incorporated accept the special order?

3. Identify the considerations that Donato should include in her analysis of the special order.

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• The future customer potential of the buyer of the special order, generating additional revenues.unanswered
• Acceptance of the special order could result in higher bonuses for the department's staff.unanswered
• Possible problems with other customers who pressure the company for similar treatment.

4. Which of the following statements are true regarding Donato's possible response to the ethical conflict arising out of the controllers insistence that the company avoid competitive bidding?

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• She should never go to the next-higher managerial level as this would mean bypassing of levels of authority and create further damage to her relations with the manager.unanswered
• Ethical conflicts are a part of everyday office life and is no cause for resigning.unanswered
• She should follow the company's established policies on such matters.unanswered
• The ethical requirement of competence would imply that Donato should try and resolve the conflict herself instead of discussing with other advisors.unanswered
• If the ethical conflict still exists after exhausting all avenues of internal review, she may have to resign from the company and submit an informative memorandum to the board of directors.unanswered
• Donato should clarify relevant concepts by confidential discussions with an objective advisor to obtain an understanding of possible courses of action.