Cost per Bat Total Costs $ 756,000 Direct materials $14 Variable direct manufacturing labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses 216,000 4 108,000 270,000 108,000 3 162,000 Total costs $30 $1,620,000 1. Suppose Diamond is currently producing and selling 44,000 bats. At this level of production and sales, its fixed costs are the same as given in the preceding table. Home Run Corporation wants to place a one-time special order for 10,000 bats at $21 each. Diamond will incur no variable sell- ing costs for this special order. Should Diamond accept this one-time special order? Show your calculations. Required 2. Now suppose Diamond is currently producing and selling 54,000 bats. If Diamond accepts Home Run's offer, it will have to sell 10,000 fewer bats to its regular customers. (a) On financial considerations alone, should Diamond accept this one-time special order? Show your calculations. (b) On financial considerations alone, at what price would Diamond be indifferent between accepting the special order and continuing to sell to its regular customers at $37 per bat. (c) What other factors should Diamond consider in deciding whether to accept the one-time special order?
Cost per Bat Total Costs $ 756,000 Direct materials $14 Variable direct manufacturing labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses 216,000 4 108,000 270,000 108,000 3 162,000 Total costs $30 $1,620,000 1. Suppose Diamond is currently producing and selling 44,000 bats. At this level of production and sales, its fixed costs are the same as given in the preceding table. Home Run Corporation wants to place a one-time special order for 10,000 bats at $21 each. Diamond will incur no variable sell- ing costs for this special order. Should Diamond accept this one-time special order? Show your calculations. Required 2. Now suppose Diamond is currently producing and selling 54,000 bats. If Diamond accepts Home Run's offer, it will have to sell 10,000 fewer bats to its regular customers. (a) On financial considerations alone, should Diamond accept this one-time special order? Show your calculations. (b) On financial considerations alone, at what price would Diamond be indifferent between accepting the special order and continuing to sell to its regular customers at $37 per bat. (c) What other factors should Diamond consider in deciding whether to accept the one-time special order?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Special order, short-run pricing. Diamond Corporation produces baseball bats for kids that it sells for $37 each. At capacity, the company can produce 54,000 bats a year. The costs of producing and selling 54,000 bats are as follows:
Transcribed Image Text:Cost per Bat
Total Costs
$ 756,000
Direct materials
$14
Variable direct manufacturing labor
Variable manufacturing overhead
Fixed manufacturing overhead
Variable selling expenses
Fixed selling expenses
216,000
4
108,000
270,000
108,000
3
162,000
Total costs
$30
$1,620,000
1. Suppose Diamond is currently producing and selling 44,000 bats. At this level of production and
sales, its fixed costs are the same as given in the preceding table. Home Run Corporation wants
to place a one-time special order for 10,000 bats at $21 each. Diamond will incur no variable sell-
ing costs for this special order. Should Diamond accept this one-time special order? Show your
calculations.
Required
2. Now suppose Diamond is currently producing and selling 54,000 bats. If Diamond accepts Home Run's
offer, it will have to sell 10,000 fewer bats to its regular customers. (a) On financial considerations
alone, should Diamond accept this one-time special order? Show your calculations. (b) On financial
considerations alone, at what price would Diamond be indifferent between accepting the special order
and continuing to sell to its regular customers at $37 per bat. (c) What other factors should Diamond
consider in deciding whether to accept the one-time special order?
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