Flower Co Manufactures and Sells Medals for Winners of Athletic and and Other

question 78

Essay

Flower Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 18,000 medals each month; current monthly production is 17,100 medals. The company normally charges $88 per medal. Cost data for the current level of production are shown below:
$\begin{array}{ll}\text {Variable costs:}\\\text {Direct materials}&\$ 495,900 \\\text {Direct labor}&\$ 324,900 \\\text {Selling and administrative}& \$ 30,780\\\text { Fixed costs: } & \\\text { Manufacturing } & \$ 345,420 \\\text { Selling and administrative } & \$ 164,160\end{array}$
The company has just received a special one-time order for 600 medals at $73 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? (CMA adapted)

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Definitions:

Total Cost

The sum of all expenses, both fixed and variable, involved in producing a good or providing a service.

Fixed Cost

Costs that do not change in total regardless of the level of output or activity in the short term.

Average Fixed Cost

The fixed costs of production (costs that do not change with the level of output) divided by the quantity of output produced.

Variable Cost

Costs that change in proportion to the level of activity or volume of production in a business.