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Requirement 1. Suppose Diamond is currently producing and selling 44,000 bats. At this level of production and sales, its fixed costs are the same
Requirement 1. Suppose Diamond is currently producing and selling 44,000 bats. At this level of production and sales, its fixed costs are the same as given in the preceding table. Home Run Corporation wants to place a one-time special order for 10,000 bats at $21 each. Diamond will incur no variable selling costs for this special order. Should Diamond 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 $ Variable manufacturing costs $ 210,000 (200,000) 10,000 Increase (decrease) in operating income if order is accepted Diamond should accept Home Run's special order because it increases operating income by $ 10,000 Requirement 2. Now suppose Diamond is currently producing and selling 54,000 bats. If Diamond accepts Home Run's offer it will have to sell 10,000 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? (a) On financial considerations alone, should Diamond 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 Variable manufacturing costs Contribution margin foregone Increase (decrease) in operating income if order is accepted $ 210,000 (200,000)
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