Question

Homework: Chapter 2 - Decision Making Homework Save 4 of 4 (3 complete) HW Score: 51.08%, 5.62 of 11 pts Score: 0 of 5 pts P11-34 (similar to) Question Help CleanUp Corporation produces baseball bats for kids that it sells for $34 each. At capacity, the company can produce 44,000 bats a year. The costs of producing and selling 44,000 bats are as follows: (Click to view the costs.) Read the requirements. Requirement 1. Suppose CleanUp is currently producing and selling 36,000 bats. At this level of production and sales, its fixed costs are the same as given in the preceding table. Ruth Corporation wants to place a one-time special order for 8,000 bats at $24 each. CleanUp will incur no variable selling costs for this special order. Should CleanUp 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.) Increase (decrease) in operating income if order is accepted Choose from any list or enter any number in the input fields and then click Check Answer. parts remaining Check Answer Clear All

Answer 1

1.

Increase in Revenue	$   1,92,000	=8000*24
Increase in Expense	$ -1,44,000	=-(13+4+1)*8000
Increase (Decrease) in Operating income	$      48,000

2.
a.

Loss of Revenue	$     -80,000	=-8000*(34-24)
Saving of Expenses	$         8,000	=8000*1
Increase (Decrease) in Operating income	$     -72,000

Since it results in loss, therefore order should not be accepted

b.
Price should be $33 i.e. ($34 regular price - $1 saving of variable selling costs)

c.
Factors to be considered are
Capacity - whether the company has sufficient capacity to produce for special order
It is also to be considered whether it will affect future sales, since foregoing regular sales for special order can affect negatively in future
It is also to be considered that whether order price will be able to cover the relevant costs