Asked by Katherinne Gamez on Apr 29, 2024
Verified
Kneller Co.manufactures and sells medals for winners of athletic and other events.Its manufacturing plant has the capacity to produce 12,000 medals each month; current monthly production is 9,600 medals.The company normally charges $99 per medal.Cost data for the current level of production are shown below: 
The company has just received a special one-time order for 500 medals at $89 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? Why?
Special One-time Order
An order that is not usual and is not expected to recur in the foreseeable future, often at a negotiated price different from regular orders.
Variable Selling
Costs related to selling that vary with the level of sales activity, such as commissions or shipping charges.
Production Capacity
The maximum output that a business can produce in a given period under normal working conditions.
- Analyze distinct orders and ascertain their monetary effects.
Verified Answer
ZK
Zybrea KnightMay 04, 2024
Final Answer :
Only the direct materials and direct labor costs are relevant in this decision.To make the decision, we must compute the average direct materials and direct labor cost per unit. 
Because the price on the special order is $89 per medal and the relevant cost is only $66, the company would earn a profit of $23 per medal.Therefore, the special order should be accepted.
Because the price on the special order is $89 per medal and the relevant cost is only $66, the company would earn a profit of $23 per medal.Therefore, the special order should be accepted.
Learning Objectives
- Analyze distinct orders and ascertain their monetary effects.