Double
Corporation produces baseball bats for kids that it sellsfor
$33
each. At? capacity, the company can produce
50,000
bats a year. The costs of producing and selling
50,000
bats are as? follows:
| Cost per Bat | Total Costs |
|---|
Direct materials | $11 | $550,000 |
|---|
Variable direct manufacturing labor | 4 | 200,000 |
|---|
Variable manufacturing overhead | 2 | 100,000 |
|---|
Fixed manufacturing overhead | 3 | 150,000 |
|---|
Variable selling expenses | 3 | 150,000 |
|---|
Fixed selling expenses | 4 | 200,000 |
|---|
Total costs | $27 | $1,350,000 |
|---|
1.
Suppose
Double
is currently producing and selling
40,000
bats. At this level of production and? sales, its fixed costsare the same as given in the preceding table.
Gehrig
Corporation wants to place a? one-time special order for
10,000
bats at
$21
each.
Double
will incur no variable selling costs for this special order.Should
Double
accept this? one-time special? order? Show yourcalculations.
2.
Now suppose
Double
is currently producing and selling
50,000
bats. If
Double
accepts
Gehrig?'s
offer it will have to sell
10,000
fewer bats to its regular customers.? (a) On financialconsiderations? alone, should
Double
accept this? one-time special? order? Show your calculations.?(b) On financial considerations? alone, at what price would
Double
be indifferent between accepting the special order andcontinuing to sell to its regular customers at
$33
per? bat? (c) What other factors should
Double
consider in deciding whether to accept the? one-time special?order?
