Question

Homerun Corporation produces baseball bats for kids that it sells for $38 each. At? capacity, the company can produce 36,000

bats a year. The costs of producing and selling 36,000 bats are as? follows:

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?(Click to view the? costs.)

	Cost per Bat	Total Costs
Direct materials	$12	$432,000
Direct manufacturing labor	2	72,000
Variable manufacturing overhead	2	72,000
Fixed manufacturing overhead	7	252,000
Variable selling expenses	4	144,000
Fixed selling expenses	5	180,000
Total costs	$32	$1,152,000

Read the requirements

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1.

Suppose CleanUpCleanUp is currently producing and selling 26 comma 00026,000 bats. At this level of production and? sales, its fixed costs are the same as given in the preceding table. MusialMusial Corporation wants to place a? one-time special order for 6 comma 0006,000 bats at $ 22$22 each. CleanUpCleanUp will incur no variable selling costs for this special order. Should CleanUpCleanUp accept this? one-time special? order? Show your calculations.

2.

Now suppose CleanUpCleanUp is currently producing and selling 32 comma 00032,000 bats. If CleanUpCleanUp accepts MusialMusial?'s offer it will have to sell 6 comma 0006,000 fewer bats to its regular customers.? (a) On financial considerations? alone, should CleanUpCleanUp accept this?one-time special? order? Show your calculations.? (b) On financial considerations?alone, at what price would CleanUpCleanUp be indifferent between accepting the special order and continuing to sell to its regular customers at $ 34$34 per? bat? (c) What other factors should CleanUpCleanUp consider in deciding whether to accept the?one-time special? order?

Requirement 1.

Suppose Homerun is currently producing and selling 26,000 bats. At this level of production and? sales, its fixed costs are the same as given in the preceding table. Musial Corporation wants to place a? one-time special order for 10,000 bats at $ 30 each. Homerun will incur no variable selling costs for this special order. Should Homerun accept this one-time special? order? Show your calculations.

Determine the effect on operating income if the order is accepted. ?(Enter decreases in operating income with parentheses or a minus? sign.)

Increase (decrease) in operating income if order is accepted

Answer 1