Joyeux Trophees Inc. (JTI) manufactures and sells medals for sporting events. Its factory has a production capacity

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Question:

Joyeux Trophees Inc. (JTI) manufactures and sells medals for sporting events. Its factory has a production capacity of 15,000 units per year. Currently, monthly production is 90% of capacity. All production is sold. The medals are sold at a price of $180 each.

Variable and fixed costs per unit depending on the current level of production:

Variable costs:

MP MOD Sales Fees

Fixed costs :

FGF Sales Fees

540 000 $ 810 000 405 000

300 000 120 000

JTI just received a special order for 2,500 units priced at $120 from Africa Inc., a South African company. For this special order, the customer bears 40% of the variable sales costs.

Sam Chicotte, an accounting assistant within JTI, is responsible for studying the special order and making a recommendation on its acceptance or rejection. In doing his analysis, Sam suggested to his immediate superior, Sophie Lebeau, to make a quote from other suppliers of raw materials in order to obtain more competitive and lower prices than those currently in force.

Sophie Lebeau insisted that current prices are competitive and that Sam Chicotte should not discuss his idea with other employees of the company. Sam subsequently learned that the current supplier of raw materials was Sophie Lebeau's brother-in-law.

WE ASK:

1. Present the company's income statement for current sales without the special order. Your calculations should show the net result as well as the marginal contribution per unit (or variable cost margin).

Identify and explain the relevant costs that Sam Chicotte should consider in his analysis of the profitability of the special order.

Calculate the impact of the special order on JTI's net profit. Do you recommend that JTI accept the special order? If not, what should be the minimum price per unit she would have to charge to accept the order? Please justify your answer.

State and explain 2 qualitative factors that JTI Company should consider in its decision to accept or reject the special order.

Suppose you are Sam Chicotte. What steps should you take to resolve the ethical issues that appear to arise from the situation regarding the choice of raw material suppliers?