Reference no: EM13752205
Special order, short-run pricing. Slugger Corporation produces baseball 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 bats are as follows:
Cost per bat Total Cost
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 3 150,000
Fixed Selling Expenses 2 100,000
Total Costs $ 31 $1,550,000
1. Suppose Slugger 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. Bench Corporation wants to place a one-time special order for 10,000 bats at $23 each. Slugger will incur no variable selling costs for this special order. Should Slugger accept this one-time special order? Show your calculations.
2. Now suppose Slugger is currently producing and selling 50,000 bats. If Slugger accepts Bench’s offer it will have to sell 10,000 fewer bats to its regular customers. (a) On financial considerations alone, should Slugger accept this one-time special order? Show your calculations. (b) On financial considerations alone, at what price would Slugger be indifferent between accepting the special order and continuing to sell to its regular customers at $36 per bat? (c) What other factors should Slugger consider in deciding whether to accept the one-time special order?
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