Homework set #4
Award Plus manufactures medals and trophies for winners of athletic competitions and other
contests. Award Plus’s manufacturing plant has the capacity to produce 10,000 medals per
month. Currently, Award Plus is operating at 75% of available capacity, producing 7,500 medals
per month. Pertinent data for this level of operations follows:
Medals produced and sold
$175 per medal
$46 per medal
Marketing & administrative
$34 per medal
$50 per medal
$40 per medal
$5 per medal
Award Plus calculates fixed costs per medal by
dividing the annual fixed cost by the number of medals it
expects to produce during the year.
Recently, Award Plus received an inquiry from a national Little League baseball organization
about the possibility of producing 1,800 medals next month. The Little League organization
plans to give the medals to the winners of the upcoming state tournaments. Since there are 50
states, 3 age brackets, and approximately 12 players per team, the organization needs 1,800
medals (i.e., 1,800 = 50 * 3 * 12). The Little League organization, however, indicates that they
are somewhat strapped for cash and can only pay $100 for each medal.
By how much will Award Plus’s profit increase or decrease if it accepts the special order?
Please show all your calculations.
Assume that Award Plus’s manufacturing plant has the capacity to produce only 9,000
medals per month rather than 10,000 medals per month. This means that if Award Plus
accepts the special order, it will have to forego sales of 300 medals to its regular customers
(i.e., the special order cannot be partially fulfilled). How does this information affect your
answer to part (b)? That is, by how much will Award Plus’ profit increase or decrease if it
accepts the special order when plant capacity is only 9,000 medals?