15.07.2022 - 23:04

# 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: Question: 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

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 preceding table. 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? 2. Now suppose Louisville is currently producing and selling 50,000 bats. If Louisville accepts Ripkins offer it will have to sell 10,000 fewer bats to its regular customers. a) On financial considerations alone should Louisville accepts this one-time special order? b) On financial considerations alone, at what price would Louisville be indifferent between accepting the special order and continuing to sell to its regular customers at$32 per bat.

c) What other factors should Louisville consider in deciding whether to accept the one-time special order?

1. Louisville should accept the one-time special order from Ripkin Corporation because the total revenue from the order would be $250,000 ($25 x 10,000), which is greater than the variable costs of producing and selling the bats (direct materials, direct manufacturing labor, and variable manufacturing overhead) of $160,000 ($16 x 10,000). This would result in a contribution margin of $90,000 ($250,000 - $160,000) to cover fixed costs and provide profit. 2a. On financial considerations alone, it depends on the contribution margin from the special order and the contribution margin lost from selling 10,000 fewer bats to regular customers. If the contribution margin from the special order is greater than the contribution margin lost from regular customers, then Louisville should accept the special order. 2b. Louisville would be indifferent between accepting the special order and continuing to sell to its regular customers at$32 per bat if the contribution margin from the special order is equal to the contribution margin from selling 10,000 bats to regular customers. This would be $6 per bat ($32 - $26) or$60,000 ($6 x 10,000). 2c. Louisville should consider other factors such as its capacity and ability to fulfill the special order without affecting regular customer orders, the potential for future orders from Ripkin Corporation or other customers, the impact on brand reputation and customer loyalty, and any ethical or environmental concerns related to producing and selling additional products. Do you know the answer? Not sure about the answer? Find the right answer to the question 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: by subject Accounting, and if there is no answer or no one has given the right answer, then use the search and try to find the answer among similar questions.