Question

The Medal Plus Company manufactures windows. Its manufacturing plant has the capacity to produce 20,000 windows each month. Current production and sales are 15,000 windows per month. The company normally charges $150 per window. Cost information for the current activity level is as follows: (Click the icon to view the cost information.) i (Click the icon to view the special order information.)

Answer 1

Requirement 1

Particulars	Without Accepting Special Order	After Accepting Special Order	Increase / ( Decrease)
Revenue	22,50,000	28,75,000	6,25,000
Variable Costs
Direct Materials	3,00,000	4,00,000	1,00,000
Direct Labour	1,50,000	2,00,000	50,000
Variable Costs	3,75,000	5,00,000	1,25,000
Total Variable Costs	8,25,000	11,00,000	2,75,000
Contribution Margin	14,25,000	17,75,000	3,50,000
Fixed Costs
Fixed Manufacturing Costs	3,00,000	3,00,000	0
Fixed Marketing Costs	55,000	55,000	0
Total Fixed Costs	3,55,000	3,55,000	0
Operating Income	10,70,000	14,20,000	3,50,000

Yes the Company should accept the Special Order as the operating income is increased by $ 350,000.

Notes and Supporting Work

Contribution Margin = Sales - Total Variable Costs

Operating Income = Contribution Margin - Total Fixed Costs

Calculation for Accepting the Sales Order

Sales Revenue = 15,000 Units * $ 150 = $ 22,50,000

Sales Revenue for additional sales of 5,000 Units = 5,000 * $ 125 per Unit = $ 625,000

Total Sales Revenue = $ 28,75,000

Total Variable Costs

Variable Manufacturing Overhead = 400 Batches * $ 1,250 per Batch = $ 600,000

Direct Labour = $ 10 per Unit * 20,000 Units = $ 200,000

Direct Materials = $ 20 per Unit * 20,000 Units = $ 400,000

Additional Information

Direct Materials Cost per Unit = 300,000 / 15,000 = $ 20 per Unit

Direct Labour Cost per Unit = 150,000 / 15,000 = $ 10 per Unit

Calculation for 15,000 Units without special order has already been done in the question.

Increase / (Decrease) = Values after Acceptance of Special Order - Values without Accepting Special Order

Requirement 2

Particulars	Without Accepting Special Order	After Accepting Special Order	Increase / ( Decrease)
Revenue	22,50,000	25,00,000	2,50,000
Variable Costs
Direct Materials	3,00,000	3,50,000	50,000
Direct Labour	1,50,000	1,75,000	25,000
Variable Costs	3,75,000	4,37,500	62,500

Total Variable Costs	8,25,000	9,62,500	1,37,500
Contribution Margin	14,25,000	15,37,500	1,12,500
Fixed Costs
Fixed Manufacturing Costs	3,00,000	3,00,000	0
Fixed Marketing Costs	55,000	55,000	0
Total Fixed Costs	355,000	355,000	0
Operating Income	10,70,000	11,82,500	1,12,500

Yes the Company should accept the Special Order as the operating income is increased by $ 112,500

Notes and Supporting Work

Contribution Margin = Sales - Total Variable Costs

Operating Income = Contribution Margin - Total Fixed Costs

Calculation for Accepting the Sales Order

Accepting Special Order will reduce the external sales by 2,500 Units

Sales Revenue = 12,500 Units * $ 150 = $ 18,75,000

Sales Revenue for additional sales of 5,000 Units = 5,000 * $ 125 per Unit = $ 625,000

Total Sales Revenue = $ 25,00,000

Total Variable Costs

Variable Manufacturing Overhead = 4)350 Batches * $ 1,250 per Batch = $ 437,500

Direct Labour = $ 10 per Unit * ,17,500 Units = $ 175,000

Direct Materials = $ 20 per Unit * 17,500 Units = $ 350,000

Additional Information

Direct Materials Cost per Unit = 300,000 / 15,000

Direct Labour Cost per Unit = 150,000 / 15,000 = $ 10 per Unit

Calculation for 15,000 Units without special order has already been done in the question.

Increase / (Decrease) = Values after Acceptance of Special Order - Values without Accepting Special Order

Requirement 3

Particulars	Without Accepting Special Order	After Accepting Special Order	Increase / ( Decrease)
Revenue	22,50,000	26,50,000	4,00,000
Variable Costs
Direct Materials	3,00,000	4,00,000	1,00,000
Direct Labour	1,50,000	2,00,000	50,000
Variable Costs	3,75,000	5,00,000	1,25,000
Total Variable Costs	8,25,000	11,00,000	2,75,000
Contribution Margin	14,25,000	15,50,000	1,25,000
Fixed Costs
Fixed Manufacturing Costs	300,000	3,00,000	0
Fixed Marketing Costs	55,000	55,000	0
Total Fixed Costs	355,000	3,55,000	0
Operating Income	10,70,000	11,95,000	1,25,000

Yes the Company should accept the Special Order as the operating income is increased by $ 125,000.

Notes and Supporting Work

Contribution Margin = Sales - Total Variable Costs

Operating Income = Contribution Margin - Total Fixed Costs

Calculation for Accepting the Sales Order

Accepting Special Order will reduce the External Unit Sales Price by $ 15

Sales Revenue = 15,000 Units * $ 135 = $ 20,25,000

Sales Revenue for additional sales of 5,000 Units = 5,000 * $ 125 per Unit = $ 625,000

Total Sales Revenue = $ 26,50,000

Total Variable Costs

Variable Manufacturing Overhead = 400 Batches * $ 1,250 per Batch = $ 500,000

Direct Labour = $ 10 per Unit * 20,000 Units = $ 200,000

Direct Materials = $ 20 per Unit * 20,000 Units = $ 400,000

Additional Information

Direct Materials Cost per Unit = 300,000 / 15,000 = $ 20

Direct Labour Cost per Unit = 150,000 / 15,000 = $ 10

Increase / (Decrease) = Values after Acceptance of Special Order - Values without Accepting Special Order