Question

Homerun Corporation produces baseball bats for kids that it sells for $ 37 each. At capacity, the company can produce 50,000 bats a year. The costs of producing and selling 50,000 bats are:


1. Suppose Homerun 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. Ryan Corporation wants to place a one- time special order for 10,000 bats at $ 23 each. Homerun will incur no variable selling costs for this special order. Should Homerun accept this one- time special order? Show your calculations.
2. Now suppose Homerun is currently producing and selling 50,000 bats. If Homerun accepts Ryan’s offer, it will have to sell 10,000 fewer bats to its regular customers.
a. On financial considerations alone, should Homerun accept this one- time special order? Show your calculations.
b. On financial considerations alone, at what price would Homerun be indifferent between accepting the special order and continuing to sell to its regular customers at $ 37 per bat?
c. What other factors should Homerun consider in deciding whether to accept the one- time specialorder?


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  • CreatedJanuary 15, 2015
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