# Cost Accounting: 11-29 Louisville Corporation produces baseball bats for kids

Cost Accounting

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.

2. Now suppose Louisville is currently producing and selling 50,000 bats. If Louisville accepts Ripkin's offer it will have to sell 10,000 fewer bats to its regular customers.

(a) On financial considerations alone, should Louisville accept this one-time special order? Show your calculations.

(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?

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.

2. Now suppose Louisville is currently producing and selling 50,000 bats. If Louisville accepts Ripkin's offer it will have to sell 10,000 fewer bats to its regular customers.

(a) On financial considerations alone, should Louisville accept this one-time special order? Show your calculations.

(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?

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