Award Plus manufactures medals and trophies for winners of athletic competitions and other contests. Award Pluss manufacturing

Award Plus manufactures medals and trophies for winners of athletic competitions and other contests. Award Plus’s manufacturing plant has the capacity to produce 10,000 medals per month. Currently, Award Plus is operating at 75% of available capacity, producing 7,500 medals per month. Pertinent data for this level of operations follows:

Medals produced and sold ..... 7,500

Selling price ....... $175 per medal

Fixed costs:*

Manufacturing ...... $46 per medal

Marketing & administrative . $34 per medal

Variable costs:

Direct materials ...... $50 per medal

Direct labor .......... $40 per medal

Profit ........... $5 per medal

*Award Plus calculates fixed costs per medal by dividing the annual

fixed cost by the number of medals it expects to produce during the year.

Recently, Award Plus received an inquiry from a national Little League baseball organization about the possibility of producing 1,800 medals next month. The Little League organization plans to give the medals to the winners of the upcoming state tournaments.

Since there are 50 states, 3 age brackets, and approximately 12 players per team, the organization needs 1,800 medals (i.e., 1,800 = 50 × 3 × 12). The Little League organization, however, indicates that they are somewhat strapped for cash and can only pay $100 for each medal.

Required:

a. Using the following table, indicate whether each item is relevant or not relevant for computing the incremental profit on the special order. Assume that Award Plus’s relevant range of operations is between 5,000 and 10,000 medals.

b. By how much will Award Plus’s profit increase or decrease if it accepts the special order?
c. Assume that Award Plus’s manufacturing plant has the capacity to produce only 9,000 medals per month rather than 10,000 medals per month. This means that if Award Plus accepts the special order, it will have to forego sales of 300 medals to its regular customers (i.e., the special order cannot be partially fulfilled). How does this information affect your answer to part (b)? That is, by how much will Award Plus’ profit increase or decrease if it accepts the special order when plant capacity is only 9,000medals?

Transcribed Image Text:

Item Relevaei (YoN Reason Regular selling price ($175) Special order price (S100) Direct materials cost Direct labor cost Fixed manufacturing cost Fixed marketing & administrative cost