Special order. Swat Corporation produces tennis racquets for kids that it sells for $16 each. At capacity, the company can produce 50,000 racquets per year. The costs of producing and selling 50,000 racquets are as follows:

REQUIRED .
1. Suppose Swat is currently producing and selling 40,000 racquets. At this level of production and sales, its fixed costs are the same as given in the table above. Lanny Corporation wants to place a one-time special order for 10,000 racquets at $11 each. Swat will incur no variable selling costs for this special order. Should Swat accept this one-time special order? Show all calculations.
2. Now suppose Swat is currently producing and sélling 50,000 racquets. If Swat accepts Lanny’s order, it will have to sell 10,000 fewer racquets to its regular customers.

a. On financial considerations alone, should Swat accept this one-time special order?
Show all calculations.

b. On financial considerations alone, at what price would Swat be indifferent between accepting the special order and continuing to sell to its regular customers at $16 per racquet?

c. What other factors should Swat consider in deciding whether to accept the one-time special order?LO1

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Cost per Racquet Total Costs Direct materials $6 $300,000 Direct manufacturing labour 2 100,000 Variable manufacturing overhead 1 50,000 Fixed manufacturing overhead 2 100,000 Variable selling expenses 1 50,000 Fixed selling expenses 50,000 Total costs $13 $650,000