Question

The Award Plus Company manufactures windows. Its manufacturing plant has the capacity to produce 12,000 windows each month. Current production and sales are 10,000 windows per month. The company normally charges $300 per window. Cost information for the current activity level is as​ follows:

Variable costs that vary with number of units produced:

Direct materials : $600,000

Direct manufacturing labour : 450,000

Variable costs (for setups, materials handling, quality control, and so on)

that vary with number of batches, 200 batches x $1,500 per batch 300,000

Fixed manufacturing costs: 200,000

Fixed marketing costs :50,000

Total costs :$1,600,000

Special order information Award Plus has just received a special​ one-time-only order for 2,000 windows at $250 per window. Accepting the special order would not affect the​ company's regular business or its fixed costs. Award Plus makes windows for its existing customers in batch sizes of 50 windows ​(200 batches x 50 windows per batch​ =10,000 ​windows). The special order requires Award Plus to make the windows in 40 batches of 50 windows.

^{Requirement 3}. As in requirement​ 1, assume that monthly capacity is 12,000windows. Award Plus

is concerned that if it accepts the special​ order, its existing customers will immediately demand a price discount of $10 in the month in which the special order is being filled. They would argue that Award Plus​'s capacity costs are now being spread over more units and that existing customers should get the benefit of these lower costs. Should Award Plus accept the special order under these​ conditions? Show your calculations. Select the labels and then enter the amounts to calculate the net effect on operating income from accepting the special order under this scenario. ​(Use a minus sign or parentheses to show a net decrease in operating income from accepting the special order. Abbreviations​ used: Operating income​ = OI; Special order​ = SO.)

?	?			Net increase (decrease)
?	- ?		= ?	in OI from accepting SO
?	- ?		= ?

The first 2 requirements are done, if you require further information please comment.Thank you :)

Answer 1

B с D E 4 Calculation of incremental operating income 5 Incremental revenue 500000 6 Less. 7 8 Incremental costs : Direct material Direct labor 120000 9 90000 10 60000 -270000 11 230000 Batch set-up cost Incremental operating income Less. Decrease in sale from regular customers Net increase in operating income 12 -100000 13 130000 14

If the sale price of the existing customers reduce by $10, there would be an increase in operating income by 130000. Hence the special order should be accepted

For reference :

​​​​​
B с 3 4 Calculation of incremental operating income 5 Incremental revenue 2000*250 6 Less 7 Incremental costs : 8 Direct material 9 Direct labor 10 Batch set-up cost 11 Incremental operating income 12 Less. Decrease in sale from regular customers 13 Net increase in operating income 14 600000/10000*2000 450000/10000*2000 1500*40 -(C8+C9+C10) D5+D10 -(10000*10) D11+D12

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