Louisville Corporation produces baseball bats for kids that it sells for $32 eac
ID: 2357112 • Letter: L
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 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 preceding table. Ripkin Corporation wants to place a onetime 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 RipkinExplanation / Answer
(1)selling price = $25 Total costs other than fixed and selling variable costs = (12+3+1) = $16 Hence contribution = 25-16 =$9 contribution on actual sales = 32 -(12+3+1+2) = $14 Since the goods are produced from excess capacity the company can accept the offer.Fixed costs are not related for decision making (2)(a)If 50000 bats are produced and sold,then company should not accept this offer Because the contribution from the actual sales($14) is greater than contribution from one time offer($9). (b)The price at which louisville will be indifferent to accept offer = $14 + $16 = $30 (c) The other factors Louis to be considered are, (1)Loosing regular Customers as their requirements may not be fulfilled in time. (2) chance of outsourcing the production of units
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