Fun Sporting Goods, Inc., manufactures a complete line of sporting equipment. Lei Enterprises operates a large chain of discount stores. Lei has approached Fun with a special order for 20,000 deluxe baseballs. Instead of being packaged separately, the balls are to be packed in boxes containing 500 baseballs each. Lei is willing to pay $2.50 per baseball. Fun’s standard annual expected production is 400,000 baseballs, but Fun is on track to produce 410,000 baseballs as the current year’s production. Fun’s maximum production capacity is 450,000 baseballs. The following additional information is available:
Standard unit cost data for 400,000 baseballs:
Direct materials ......................... $ 1.00
Direct labor ................................ 0.50
Overhead:
Variable ................................. 0.60
Fixed ($100,000 ÷ 400,000) ........................ 0.25
Packaging per unit ............................. 0.20
Advertising ($60,000 ÷ 400,000) ...................... 0.15
Other fixed selling and administrative expenses ($120,000 ÷ 400,000) ..... 0.30
Product unit cost .............................. $ 3.00
Unit selling price .............................. $ 4.00
Total estimated bulk packaging costs for special order (20,000 baseballs: 500 per box).. $2,000
1. Should Fun Sporting Goods accept Lei’s offer?
2. What would be the minimum order price per baseball if Fun would like to earn a profit of $3,000 from the special order?