Special Order Award Plus Co. manufactures medals for winners of athletic events and other...

Special Order Award Plus Co. manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 10,000 medals each month; current monthly production is 7,500 medals. The company normally charges $225 per medal. Variable costs and fixed costs for the current activity level of 75% follow:

Award Plus has just received a special one-time order for 2,500 medals at $115 per medal. For this particular order, no variable marketing costs will be incurred. Cathy Senna, a management accountant with Award Plus, has been assigned the task of analyzing this order and recommending whether the company should accept or reject it. After examining the costs, Senna suggested to her supervisor, Gerard LePenn, who is the controller, that they request competitive bids from vendors for the raw materials since 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. Senna later discovered that LePenn is a brother-inlaw of the owner of the current raw materials supply vendor.

Required

1. Calculate both the old (i.e., prior to the special order) average cost per unit and the recalculated average cost per unit, including the effect of the special sales order. Are either of these two figures relevant for evaluating whether to accept or reject the special order? Explain.

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2. Based on a short-term financial analysis, determine if Award Plus Co. should accept the special order and why.

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3. What is the breakeven selling price per unit for the special sales order?

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4. Discuss at least three other considerations that Cathy Senna should include in her analysis of the special order.

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5. Explain how Cathy Senna should try to resolve the ethical conflict arising out of the controller’s insistence that the company avoid competitive bidding.

(CMA Adapted)