Jen’s Sporting Goods, Inc. manufactures a complete line of sporting equipment. Leiden Enterprises operates a large chain of discount stores. Leiden has approached Jens with a special order for 30,000 deluxe baseballs. Instead of being packaged separately, the balls are to be packed in boxes containing 500 baseballs each. Leiden is willing to pay $2.45 per baseball. Jens knows that annual expected production is 400,000 baseballs. It also knows that the current year’s production is 410,000 baseballs and that the maximum production capacity is 450,000 baseballs. The following additional information is available:
Standard unit cost data for 400,000 baseballs:
Direct materials $0.90
Direct Labor $0.60
Overhead Variable $.50
Fixed (100,000 divided by 400,000) $.25
Packaging per unit $.030
Advertising (60,000 divided by 400,000) $.015
Other fixed selling and administrative expenses ($120,000 divided by $400,000) $.030
Product unit cost $3.00
Unit selling price $4.00
Total estimated bulk packaging costs for special order (30,000 baseballs; 500 per box) $2,500
1. Should Jens Sporting Goods, Inc., accept Leiden’s offer?
2. What would be the minimum order price per baseball if Jens would like to earn a profit of $3,000
from the special order?
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