Winner’s Circle, Inc., manufactures medals for winners of athletic events and other contests. Its manu-facturing 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 ....................................................................................................$ 1,275,000 Variable cost per unit ..................................................................................$ 110 Fixed cost per unit ....................................................................................... 60 Average unit cost ........................................................................................$ 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 recommend-ing whether the company should accept or reject it. After examining the costs, Donato suggested to her supervisor, Gerard LePenn, who is the controller, that they request competitive bids from vendors for the raw material as 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. Donato later discovered that LePenn is a brother-in-law of the owner of the current raw-material supply vendor 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. The question is related to accept or reject an special offer of 2500 units at a price of $100 per unit. In the given question the company is working at 75% Capacity and producing 7500 units for external demand. The comapny has a capacity of 10000 units at 100% capacity level. The comapny has ideal capcity of 2500 units which it will use to fuflil special order. The costs that will be relevant to Cathy Donato’s analysis of the special order being considered by Winner’s Circle, Inc. are Direct Material amd Direct labor. Production in units = 7500 units Direct Material = $375000 Direct Labor = $262500 Total Variable cost of manufacturing = $637500 Variable cost of manufacturing per unit = $85 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. Winner’s Circle should accept the special order because the variable cost of manufacturing per unit is $85 and the special-order price is $100 per unit so there is an increase in Contribution of $15 per unit. Variable Marketing cost will not be incurred for special order hence not considered. The Average unit cost of new will be $85 for special order. Fixed cost is not relavent. The incremental unit cost (saving) for the special order will be $110 - $85 = ($25). 3.Discuss any other considerations that Donato should include in her analysis of the special order. Other considerations that Donato should include in her analysis of the special order. Extra revenue they will be received against extra cost incurred. The capacity required to fulfill the special order. The special order must be regular not one time. Qualitative factors can be considered. Required: 4.What steps could Donato take to resolve the ethical conflict arising out of the controller’s insistence that the company avoid competitive bidding? 5.Build a spreadsheet: Construct an Excel spreadsheet to solve requirement 2. Show how the solu-tion will change if the sales price is $170 per medal
Winner’s Circle, Inc., manufactures medals for winners of athletic events and other contests. Its manu-facturing 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 ....................................................................................................$ 1,275,000
Variable cost per unit ..................................................................................$ 110
Fixed cost per unit ....................................................................................... 60
Average unit cost ........................................................................................$ 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
- 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.
The question is related to accept or reject an special offer of 2500 units at a price of $100 per unit. In the given question the company is working at 75% Capacity and producing 7500 units for external demand. The comapny has a capacity of 10000 units at 100% capacity level. The comapny has ideal capcity of 2500 units which it will use to fuflil special order.
The costs that will be relevant to Cathy Donato’s analysis of the special order being considered by Winner’s Circle, Inc. are Direct Material amd Direct labor.
Production in units = 7500 units
Direct Material = $375000
Direct Labor = $262500
Total Variable cost of manufacturing = $637500
Variable cost of manufacturing per unit = $85
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.
Winner’s Circle should accept the special order because the variable cost of manufacturing per unit is $85 and the special-order price is $100 per unit so there is an increase in Contribution of $15 per unit. Variable Marketing cost will not be incurred for special order hence not considered. The Average unit cost of new will be $85 for special order. Fixed cost is not relavent. The incremental unit cost (saving) for the special order will be $110 - $85 = ($25).
3.Discuss any other considerations that Donato should include in her analysis of the special order.
Other considerations that Donato should include in her analysis of the special order.
- Extra revenue they will be received against extra cost incurred.
- The capacity required to fulfill the special order.
- The special order must be regular not one time.
- Qualitative factors can be considered.
Required:
4.What steps could Donato take to resolve the ethical conflict arising out of the controller’s insistence that the company avoid competitive bidding?
5.Build a spreadsheet: Construct an Excel spreadsheet to solve requirement 2. Show how the solu-tion will change if the sales price is $170 per medal"
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