Problem 2 (10 points)Dr. W Corporation produces a baseball bat that sells for $425. Although the company'sproduction capacity is 5,000 bats per year, only 4,000 bats are currently being produced and sold.The total production costs for 4,000 bats are as follows:Direct materialsDirect laborVariable overheadBatch set-up cost (maximum batch size is 400 bats)Fixed cost of storing direct materialsFixed property taxesThe Milwaukee Brewers baseball team has offered to purchase 1,000 baseball bats at a one-timespecial purchase price of $350 per bat. If Dr. W accepts this order, the company will makeexactly 1,000 additional bats to fill it.Item tocalculateTotal relevantrevenues forthe specialorder (3)Total relevantcosts for thespecial order(3)$800,000$400,000$100,000$20,000 [$2,000 per batch]$16,000$40,0000Supporting Analysis$425 4,000-$1,700,000800,000+400,000+ 20,000+16,000= 1,236,000ResultIncreaseDecrease$1,700,000-1$1,236,000-3If Dr. W accepts this special order, will Dr. W's cash flows increase or decrease, and by howmuch? Show your calculations, report your result in the box, and circle the appropriate directiorof the change in cash flow. (2)Dr. W's cash flow will (circle one):By this amount:$42,500,000

Total relevant revenues = selling price per unit * number of units sold. equals 425 * 4,000 =…

Answered: cash flow will (circle

Business

Accounting

cash flow will (circle

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 3PA: Marcotti Cupcakes bakes and sells a basic cupcake for $1.25. The cost of producing 600,000 cupcakes...

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