Anglen Co. manufactures and sells trophies for winners of athletic and other eve
ID: 2482305 • Letter: A
Question
Anglen Co. manufactures and sells trophies for winners of athletic and other events. Its manufacturing plant has the capacity to produce 18,000 trophies each month; current monthly production is 14,400 trophies. The company normally charges $103 per trophy. Cost data for the current level of production are shown below:
Variable costs:
Direct materials.............................
$460,800
Direct labor..................................
$316,800
Selling and administrative..............
$15,840
Fixed costs:
Manufacturing...............................
$404,640
Selling and administrative..............
$74,880
The company has just received a special one-time order for 900 trophies at $48 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs.
Required:
Should the company accept this special order? Why?
Variable costs:
Direct materials.............................
$460,800
Direct labor..................................
$316,800
Selling and administrative..............
$15,840
Fixed costs:
Manufacturing...............................
$404,640
Selling and administrative..............
$74,880
Explanation / Answer
For Accepting the Order (All values in $) Sale Revenue for 900 trophies @ $48 each 43200 Existing Revenue for 14,400 trophies @ $103 per trophy 1483200 1526400 Costs incurred Material Cost for 15,300 trophies @ $32 per trophy 489600 Labor Cost for 15,300 trophies @ $22 per trophy 336600 Selling and Admin Costs for 14,400 trophies 15840 Fixed Costs (Manufacturing + Selling/Admin) 479520 1321560 Net Income to be earned 204840 Original Income earned 14,400 trophies @ $103 per trophy 1483200 Costs per table given 1272960 Net Income earned currently 210240 Since there is a reduction in the Net Income of Anglen Co by $5,400 on accepting the order, the Company should not accept the special order for 900 trophies.