Question - Yokohama Company produces baseball bats for kids that it sells for $36 each. At capacity, the company can produce 50,000 bats a year although company is currently producing and selling 40,000 bats. The costs of producing and selling 50,000 bats are as follows:
|
Cost per Bat
|
Total costs
|
|
Direct materials
|
$13
|
$650,000
|
|
Direct manufacturing labour
|
5
|
250,000
|
|
Variable manufacturing overhead
|
2
|
100,000
|
|
Fixed manufacturing overhead
|
6
|
300,000
|
|
Variable selling expenses
|
3
|
150,000
|
|
Fixed selling expenses
|
2
|
100,000
|
|
Total costs
|
$31
|
$1,550,000
|
Required:
(a) Bench Company wants to place a one-time special order for 10,000 bats at $23 each. Yokohama Company will incur no variable selling costs for this special order. Should Yokohama Company accept this one-time special order? Show your calculations.
(b) If Yokohama Company is currently producing and selling 50,000 bats, on financial consideration alone should Yokohama Company accept this one-time special order?
(c) Identify and briefly discuss other factors Yokohama Company should consider in deciding whether to accept the one-time special order.