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Operating Income Changes: Belltown Athletic Supply

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Belltown Athletic Supply (BAS) makes game jerseys for athletic teams. The F.C. Kitsap soccer club has offered to buy 100 jerseys for the teams in its league for $15 per jersey. The team price for such jerseys normally is $18, an 80% markup over BAS?s purchase price of $10 per jersey. BAS adds a name and number to each jersey at a variable cost of $2 per jersey. The annual fixed cost of equipment used in the printing process is $6,000, and other fixed costs allocated to jerseys are $2,000. BAS makes about 2,000 jerseys per year, so the fixed cost is $4 per jersey. The equipment is used only for printing jerseys and stands idle 75% of the usable time.

The manager of BAS turned down the offer, saying, ?If we sell at $15 and our cost is $16, we lose money on each jersey we sell. We would like to help your league, but we can?t afford to lose money on the sale.?

Compute the amount by which the operating income of BAS would change if it accepted F.C. Kitsap?s offer.

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The solution calculates the amount by which the operating income changes.

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The operating income of the company will increase by $300, if this offer is accepted.

Here are the calculations.

Operating income without this new ...

Solution provided by:
Sandeep Bardia, MBA
Education
  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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