Diamond

Corporation produces baseball bats for kids that it sells for

$37

each. At capacity, the company can produce

44,000

bats a year. The costs of producing and selling

44,000

bats are as follows:

Cost per Bat

Total Costs

Direct materials

$16

$704,000

Variable direct manufacturing labor

3

132,000

Variable manufacturing overhead

2

88,000

Fixed manufacturing overhead

4

176,000

Variable selling expenses

1

44,000

Fixed selling expenses

4

176,000

Total costs

$30

$1,320,000

1.

Suppose Diamond is currently producing and selling 30,000 bats. At this level of production and sales, its fixed costs are the same as given in the preceding table. Ripken Corporation wants to place a one-time special order for 14,000 bats at $24 each. Diamond will incur no variable selling costs for this special order. Should Diamond accept this one-time special order? Show your calculations.

2.

Now suppose Diamond is currently producing and selling 44,000 bats. If Diamond accepts Ripken's offer it will have to sell 14,000 fewer bats to its regular customers. (a) On financial considerations alone, should Diamond accept this one-time special order? Show your calculations. (b) On financial considerations alone, at what price would Diamond be indifferent between accepting the special order and continuing to sell to its regular customers at $37 per bat? (c) What other factors should Diamond consider in deciding whether to accept the one-time special order?