Hamad Corporation produces cricket bats for kids that it sells for $36 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 $13 $ 650,000 Direct manufacturing labor 5 250,000 Variable manufacturing overhead 2 100,000 Fixed manufacturing overhead 6 300,000 Variable selling expenses 3
EL Hamad Corporation produces cricket bats for kids that it sells for $36 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 $13 $ 650,000
Direct manufacturing labor 5 250,000
Variable manufacturing
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:
1. Suppose EL Hamad 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.
El Noor Corporation wants to place a one-time special order for 10,000 bats at $23
each. EL Hamad will incur no variable selling costs for this special order. Should
EL Hamad accept this one-time special order? Show your calculations.
2. Now suppose EL Hamad is currently producing and selling 50,000 bats. If EL
Hamad accepts FieldTactics’ offer it will have to sell 10,000 fewer bats to its
regular customers.
(a) On financial considerations alone, should EL Hamad accept this one-time
special order? Show your calculations.
(b) On financial considerations alone, at what price would EL Hamad be
indifferent between accepting the special order and continuing to sell to its
regular customers at $36 per bat.
(c) What other factors should EL Hamad consider in deciding whether to
accept the one-time special order?
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