Kneller Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 22,000 medals each month; current monthly production is 10,000 medals. The company normally charges $116 per medal. Cost data for the current level of production are shown below: Variable costs: Direct materials$562,300Direct labor$180,000Selling and administrative$29,200Fixed costs: Manufacturing$168,500Selling and administrative$92,200 The company has just received a special one-time order for 500 medals at $103 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs. Assume that direct labor is a variable cost. Required:Should the company accept this special order?

Relevant cost to consider: Direct material cost per modal. (562,300/10000) 56.23 Direct labour…

Answered: Kneller Co. manufactures and sells…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter6: Activity-based, Variable, And Absorption Costing

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Kneller Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 22,000 medals each month; current monthly production is 10,000 medals. The company normally charges $116 per medal. Cost data for the current level of production are shown below:


Variable costs:
Direct materials	$	562,300
Direct labor	$	180,000
Selling and administrative	$	29,200
Fixed costs:
Manufacturing	$	168,500
Selling and administrative	$	92,200

The company has just received a special one-time order for 500 medals at $103 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs. Assume that direct labor is a variable cost.

Required:

Should the company accept this special order?

Expert Solution

Step 1

Relevant cost to consider:

Direct material cost per modal. (562,300/10000)	56.23
Direct labour (180,000/10000)	18
Total relevant cost (56.23 + 18)	74.23
Special order price per medal	103

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