Special Order Louisville Corporation
Special Order Louisville Corporation produces baseball bats for kids that it sells for $32 each. At capacity, the company can produce 50,000 bats a year. The costs of producing and selling 50,000 bats are as follows:
1. Suppose Louisville is currently producing and selling 40,000 bats. At this level of production and sales its fixed costs are the same as given in the table above. Ripkin Corporation wants to place a one-time special order for 10,000 bats at $25 each. Louisville will incur no variable selling costs for this special order. Should Louisville accept this one-time special order? Show your calculations.
2. Now suppose Louisville is currently producing and selling 50,000 bats. If Louisville accepts Ripkins offer it will have to sell 10,000 fewer bats to its regular customers.
(a) On financial considerations alone should Louisville accept this one-time special order? Show your calculations.
(b) On financial considerations alone, at what price would Louisville be indifferent between accepting the special order and continuing to sell to its regular customers at$32 per bat.
(c) What other factors should Louisville consider in deciding whether to accept the one-time specialorder?