cash flow will (circle
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Problem 2 (10 points)
Dr. W Corporation produces a baseball bat that sells for $425. Although the company's
production capacity is 5,000 bats per year, only 4,000 bats are currently being produced and sold.
The total production costs for 4,000 bats are as follows:
Direct materials
Direct labor
Variable overhead
Batch set-up cost (maximum batch size is 400 bats)
Fixed cost of storing direct materials
Fixed property taxes
The Milwaukee Brewers baseball team has offered to purchase 1,000 baseball bats at a one-time
special purchase price of $350 per bat. If Dr. W accepts this order, the company will make
exactly 1,000 additional bats to fill it.
Item to
calculate
Total relevant
revenues for
the special
order (3)
Total relevant
costs for the
special order
(3)
$800,000
$400,000
$100,000
$20,000 [$2,000 per batch]
$16,000
$40,000
0
Supporting Analysis
$425 4,000-$1,700,000
800,000+400,000+ 20,000+16,000
= 1,236,000
Result
Increase
Decrease
$1,700,000
-1
$1,236,000
-3
If Dr. W accepts this special order, will Dr. W's cash flows increase or decrease, and by how
much? Show your calculations, report your result in the box, and circle the appropriate directior
of the change in cash flow. (2)
Dr. W's cash flow will (circle one):
By this amount:
$42,500,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6886c97c-1c8d-42de-8fb1-00bfaefd1524%2Fb87d3b8b-1b5e-4b52-b522-e3f64a16814f%2F9w4vwgn_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 2 (10 points)
Dr. W Corporation produces a baseball bat that sells for $425. Although the company's
production capacity is 5,000 bats per year, only 4,000 bats are currently being produced and sold.
The total production costs for 4,000 bats are as follows:
Direct materials
Direct labor
Variable overhead
Batch set-up cost (maximum batch size is 400 bats)
Fixed cost of storing direct materials
Fixed property taxes
The Milwaukee Brewers baseball team has offered to purchase 1,000 baseball bats at a one-time
special purchase price of $350 per bat. If Dr. W accepts this order, the company will make
exactly 1,000 additional bats to fill it.
Item to
calculate
Total relevant
revenues for
the special
order (3)
Total relevant
costs for the
special order
(3)
$800,000
$400,000
$100,000
$20,000 [$2,000 per batch]
$16,000
$40,000
0
Supporting Analysis
$425 4,000-$1,700,000
800,000+400,000+ 20,000+16,000
= 1,236,000
Result
Increase
Decrease
$1,700,000
-1
$1,236,000
-3
If Dr. W accepts this special order, will Dr. W's cash flows increase or decrease, and by how
much? Show your calculations, report your result in the box, and circle the appropriate directior
of the change in cash flow. (2)
Dr. W's cash flow will (circle one):
By this amount:
$42,500,000
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