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11-29: Special Order. Louisville Corporation produces baseball bats for kids that it sells for $32 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

$12

$600,000

Direct manufacturing labor

$3

$150,000

Variable manufacturing overhead

$1

$50,000

Fixed manufacturing overhead

$5

$250,000

Variable selling expenses

$2

$100,000

Fixed selling expenses

$4

$200,000

Total costs

$27

$1,350,000


Required
1. Suppose Louisville 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 table above. Ripkin Corporation wants to place a one-time special order for 10,000 bats at $25 each. Louisville will incur no variable selling costs for this special order. Should Louisville accept this one-time special order? Show your calculations.

Yes, because his operating income will be increased; see table below.


 

Cost per bat

 

Total bats

 

Total cost


(1)

x

(2)

=

(3)

Revenues

$25

x

              10,000

=

$250,000

Variable costs:






     Manufacturing

$16

x

 

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