Answer:
a)
Statement of Incremental Profit
If Special Order is Accepted - 10,000 Bats
Incremental Income
Sales Revenue - 10,000 Nos X $21 210,000.00
Savings of Variable Selling Expense - 10,000 Nos X $2 20,000.00 230,000.00
Incremental Cost:
Direct Materials - 10,000 Nos X $14 140,000.00
Direct Labor - 10,000 Nos X $4 40,000.00
Variable MOH - 10,000 Nos X $2 20,000.00
Loss of Contribution on Normal sales - 10,000 Nos X $15 150,000.00 350,000.00
Incremental Profit (Loss) (120,000.00)
Contribution Margin per Bat - Normal sales = $37 - ($14 + $4 + $2 + $2)
Contribution Margin per Bat - Normal sales = $15
No, Diamond Corporation should not accept the Order.
b)
Special order Price per Unit = Incremental Cost + Contribution Lost per Unit
Incremental Cost = $14 + $4 + $2 = $20
Contribution Lost per Unit = $37 - ($14 + $4 + $2 + $2)
Contribution Lost per Unit = $15 per unit
Special order Price per Unit = $20 + $15
Special order Price per Unit = $35 per Unit
c)
The other factors to be considered before accepting the order are:
1. Effect of on relationship between the existing customers.
2. Whether the order is a one time or can be repeated in future.
