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    Special Order Decision

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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 nmae 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 2000 jerseys per year, so the fixed cost is $4 per jersey. The equipment is used only for printing jerseys and stands idel 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."
    1. Compute the amount by which the operating income of BAS would change if the F.C. Kitsap's offer were accepted.
    2. Suppose you were the manager of BAS. Would you accept the offer? In addition to considering the quantitative impact computed in requirement 1, list two qualitative consideration that would influence your decision, one qualitative factor supporting acceptance of the offer and one supporting rejection.

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    Solution Preview

    (a) The relevant costs are the variable costs, since the fixed costs will not change. The variable cost of the jersey is 10 (purchase price)+2(adding the name ...

    Solution Summary

    The solution explains how to determine if a special order should be accepted.