Question

Double

Corporation produces baseball bats for kids that it sells for

$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 costs are 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 your calculations.

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 financial considerations​ 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 and continuing 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?

Answer 1