Special order, activity-based costing. (CMA, adapted) The Gold Plus Company manufact...

Special order, activity-based costing. (CMA, adapted) The Gold Plus Company manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 11,000 medals each month. Current production and sales are 10,000 medals per month. The company normally charges $150 per medal. Cost information for the current activity level is as follows:

Gold Plus has just received a special one-time-only order for 1,000 medals at $100 per medal. Accepting

the special order would not affect the company’s regular business. Gold Plus makes medals for its existing

customers in batch sizes of 50 medals (200 batches * 50 medals per batch = 10,000 medals). The special

order requires Gold Plus to make the medals in 25 batches of 40 medals.

1. Should Gold Plus accept this special order? Show your calculations.

2. Suppose plant capacity were only 10,500 medals instead of 11,000 medals each month. The special

order must either be taken in full or be rejected completely. Should Gold Plus accept the special order?

Show your calculations.

3. As in requirement 1, assume that monthly capacity is 11,000 medals. Gold 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 Gold Plus’s capacity costs are

now being spread over more units and that existing customers should get the benefit of these lower

costs. Should Gold Plus accept the special order under these conditions? Show your calculations.