Award Plus Co. manufactures medals for winners of athletic events and other contests. Its manufacturing plant has
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Current Product Costs
Variable costs
Manufacturing
Labor ................. $ 375,000
Material ................ 262,500
Marketing ............. 187,500
Total variable costs .......... $ 825,000
Fixed costs
Manufacturing ............ $ 275,000
Marketing ............. 175,000
Total fixed costs .......... $ 450,000
Total costs ............. $1,275,000
Award Plus has just received a special one-time order for 2,500 medals at $100 per medal. For this particular order, no variable marketing costs will be incurred. Cathy Senna, a management accountant with Award Plus, has been assigned the task of analyzing this order and recommending whether the company should accept or reject it. After examining the costs, Senna suggested to her supervisor, Gerard LePenn who is the controller, that they request competitive bids from vendors for the raw materials since 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. Senna later discovered that LePenn is a brother-in-law of the owner of the current raw materials supply vendor.
Required
1. Determine if Award Plus Co. should accept the special order and why.
2. Discuss at least three other considerations that Cathy Senna should include in her analysis of the special order.
3. Explain how Cathy Senna should try to resolve the ethical conflict arising out of the controller’s insistence that the company avoid competitive bidding.
(CMA Adapted)
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Related Book For
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins
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