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Question - Belltown Athletic Supply (BAS) makes game jerseys for athletic teams. The F. C. Kitsap soccer clubhas offered to buy 100 jerseys for the teams in its league for $15 per jersey. The team price for such jerseys is typically $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."
Required -
1. Compute the amount by which the operating income of BAS would change if it accepted F. C. Kitsap's offer.
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 considerations that would influence your decision-one qualitative factor supporting acceptance of the offer and one supporting rejection.
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