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Part 1

Runner

Corporation produces baseball bats for kids that it sells for

$39

each. At capacity, the company can produce

60,000

bats a year. The costs of producing and selling

60,000

bats are as follows:

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Data table

	Cost per Bat	Total Costs
Direct materials	$12	$720,000
Variable direct manufacturing labor	5	300,000
Variable manufacturing overhead	2	120,000
Fixed manufacturing overhead	6	360,000
Variable selling expenses	4	240,000
Fixed selling expenses	4	240,000
Total costs	$33	$1,980,000

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.Requirements

1.

Suppose Runner 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. Ryan Corporation wants to place a one-time special order for 30,000 bats at $23 each. Runner will incur no variable selling costs for this special order. Should Runner accept this one-time special order? Show your calculations.

2.

Now suppose Runner is currently producing and selling 60,000 bats. If Runner accepts Ryan's offer it will have to sell 30,000 fewer bats to its regular customers. (a) On financial considerations alone, should Runner accept this one-time special order? Show your calculations. (b) On financial considerations alone, at what price would Runner be indifferent between accepting the special order and continuing to sell to its regular customers at $39 per bat? (c) What other factors should Runner consider in deciding whether to accept the one-time special order?

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Part 1

Requirement 1. Suppose

Runner

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.

Ryan

Corporation wants to place a one-time special order for

30,000

bats at

$23

each.

Runner

will incur no variable selling costs for this special order. Should

Runner

accept this one-time special order? Show your calculations.

Determine the effect on operating income if the order is accepted. (Enter decreases in operating income with parentheses or a minus sign.)

Revenues from special order	$690,000
Variable manufacturing costs	(570,000)
Increase (decrease) in operating income if order is accepted	$120,000

Part 2

Runner should

accept

Ryan's special order because it

increases

operating income by

$120,000

.

Part 3

Requirement 2. Now suppose

Runner

is currently producing and selling

60,000

bats. If

Runner

accepts

Ryan's

offer it will have to sell

30,000

fewer bats to its regular customers. (a) On financial considerations alone, should

Runner

accept this one-time special order? Show your calculations. (b) On financial considerations alone, at what price would

Runner

be indifferent between accepting the special order and continuing to sell to its regular customers at

$39

per bat? (c) What other factors should

Runner

consider in deciding whether to accept the one-time special order?

(a) On financial considerations alone, should

Runner

accept this one-time special order? Show your calculations.

Determine the effect on operating income if the order is accepted. (Enter decreases in operating income with parentheses or a minus sign.)

Revenues from special order	39
Variable manufacturing costs	25
Contribution margin foregone
Increase (decrease) in operating income if order is accepted