Question

Requirement 2. Suppose plant capacity were only 11,000 windows instead of 12,000 windows each month. The special order must either be taken in full or be rejected completely. Should Award Plus accept the special​ order? Show your calculations. Complete the analysis below to determine if Award Plus should accept the special order under this scenario.

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

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 batc 10,000​windows). The special order requiresAward Plus to make the windows in 40 batches of 50 windows

		With One-Time
		Only Special Order
		Under Reduced
		Plant Capacity
		11,000 Windows
Revenues
Variable costs:
	Direct materials
	Direct manufacturing labour
	Batch manufacturing costs
Fixed costs:
	Fixed manufacturing costs
	Fixed marketing costs
Total costs
Operating income

Answer 1

Particulars	Without Accepting Special Order	Accepting Special Order	Increase / (Decrease)
Sales Revenue	30,00,000	32,00,000	2,00,000
Variable Costs
Direct Materials	6,00,000	6,60,000	60,000
Direct Labour	4,50,000	4,95,000	45,000
Variable Costs	300,000	330,000	30,000
Total Variable Costs	13,50,000	14,85,000	1,35,000
Contribution Margin	16,50,000	17,15,000	65,000
Fixed Costs
Fixed Manufacturing Costs	2,00,000	2,00,000	0
Fixed Marketing Costs	50,000	50,000	0
Total Fixed Cost	2,50,000	250,000	0
Operating Income	14,00,000	14,65,000	65,000

The Offer should be accepted as it increases the Operating Income by $ 65,000

Notes and Supporting Work

Contribution Margin = Sales - Total Variable Costs

Operating Income = Contribution Margin - Total Fixed Costs

Calculation for Accepting the Sales Order

On Accepting Special Order Sales to Outside will decrease by 1,000 Units

Sales Revenue = 9,000 Units * $ 300 = $ 27,00,000

Sales Revenue for additional sales of 2,000 Units = 2,000 * $ 250 per Unit = $ 500,000

Total Sales Revenue = 27,00,000 + 5,00,000 = $ 32,00,000

Total Variable Costs

Variable Manufacturing Overhead = 220 Batches * $ 1,500 per Batch = $ 330,000

Direct Labour = $ 45 per Unit * 11,000 Units = $ 495,000

Direct Materials = $ 60 per Unit * 11,000 Units = $ 660,000

Additional Information

Direct Materials Cost per Unit = 600,000 / 10,000 = $ 60 per Unit

Direct Labour Cost per Unit = 450,000 / 10,000 = $ 45 per Unit

Calculation for 10,000 Units without special order has already been done in the question.

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

Batches for 11,000 Units = 11,000 / 50 = 220 Batches