Question

Winner’s Circle, Inc., manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 2,300 medals each month. Current monthly production is 1,725 medals. The company normally charges $590 per medal. Variable costs and fixed costs for the current activity level of 75 percent of capacity are as follows:

Production Costs
Variable costs:
Manufacturing:
Direct labor	$	241,500
Direct material		232,875
Marketing		129,375
Total variable costs	$	603,750
Fixed costs:
Manufacturing	$	206,850
Marketing		155,400
Total fixed costs	$	362,250
Total costs	$	966,000
Variable cost per unit	$	350
Fixed cost per unit		210
Average unit cost	$	560

Winner’s Circle has just received a special one-time order for 575 medals at $365 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. 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.

2-a. Compute both the new average unit cost and the incremental unit cost for the special order.
2-b. Should Winner’s Circle, Inc. accept the special order? Yes or No

Answer 1