Winner's Circle Inc., manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 10,000 medals each month. Current monthly production is 7,500 medals. The company normally charges $175 per medal. Variable costs and fixed costs for the current activity level of 75 percent of capacity are as follows: Variable costs: Manufacturing Direct labor $375,000 Direct 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 (Variable + Fixed) $1,275,000 Unit Costs: Variable cost per unit $110 Fixed cost per unit $60 Average Cost per unit $170 Winner's Circle 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 Donato, a management accountant with Winner's Circle has been assigned the task of analyzing this order and recommending whether the company should accept or reject it. 1) Identify and explain the costs that will be relevant to Cathy Donato's analysis of the special order being considered by Winner's Circle, Inc. 2) Determine if Winner's Circle should accept the special order. In explaining your answer, compute both the new average unit cost and the incremental unit cost for the special order. 3) Discuss any other considerations that Donato should include in her analysis of the special order.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Winner's Circle Inc., manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 10,000 medals each month. Current monthly production is 7,500 medals. The company normally charges $175 per medal. Variable costs and fixed costs for the current activity level of 75 percent of capacity are as follows:

Variable costs:

Manufacturing
Direct labor	$375,000
Direct 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 (Variable + Fixed)	$1,275,000

Unit Costs:

Variable cost per unit	$110
Fixed cost per unit	$60
Average Cost per unit	$170

Winner's Circle 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 Donato, a management accountant with Winner's Circle has been assigned the task of analyzing this order and recommending whether the company should accept or reject it.

1) Identify and explain the costs that will be relevant to Cathy Donato's analysis of the special order being considered by Winner's Circle, Inc.

2) Determine if Winner's Circle should accept the special order. In explaining your answer, compute both the new average unit cost and the incremental unit cost for the special order.

3) Discuss any other considerations that Donato should include in her analysis of the special order.

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