Slugger Corporation produces baseball bats for kids that It sells for $35 each. At capacity, the company can produce 60,000 bats a year. The costs of producing and selling 60,000 bats are as follows:
Cost Per Bat Total Costs
Direct materials $15 $900,000
Direct manufacturing labor 4 240,000
Variable manufacturing overhead 1 60,000
Fixed manufacturing overhead 6 360,000
Variable selling expenses 2 120,000
Fixed selling expenses 5 300,000
Total costs $33 $1,980,000
1. Suppose Slugger is currently producing and selling $50,000 bats. At this level of production and sales, its fixed costs are the same as given in the table above. Batter Up Corporation wants to place a one-time special order for 20,000 bats at $30 each. Slugger will incur no variable selling costs for this special order. Should Slugger accept this one-time special order? Show your calculations.
2. Now suppose Slugger is currently producing and selling 60,000 bats. If Slugger accepts Batter Up's offer it will have to sell 20,000 fewer bats to its regular customers.
a. On financial considerations alone, should Slugger accept this one-time special order? Show your calculations.
b. On financial considerations alone, at what price would Slugger be indifferent between accepting the special order and continuing to sell to its regular customers at $35 per bat?
c. What other factors should Slugger consider in deciding whether to accept the one-time special order?
If they have the 10,000 capacity, accepting improves overall profits by $70,000. If they do not have capacity, accepting reduces overall profits by $60,000.
When the contribution margin is the same between the current sales and the special order, they would be indifferent. So, the special order price at $33 would ...
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