Task: 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
|
Question 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.
Question 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?