Cosco\'s sportsware makes jerseys for sports teams.The junior league gruop has o
ID: 2464118 • Letter: C
Question
Cosco's sportsware makes jerseys for sports teams.The junior league gruop has offered to buy 80 jersey's for the teams in its leaguesfor $16 per jersey The normal price is $20Ciscos purchases the plain jersey for $12 per jersey amd then sews a name to each jersey at a variable cost of $3 per jersey.Cisco's makes 2000 jersey's per year and has a capacity of 4000 jerseys.Fixed costs to make jerseys is $5000.Other fixed costs allocated to jerseys are 2000 per year.Should Cisco accept the offer?How much will profits be affected?
Explanation / Answer
Statement showing computations Particulars Amount Revenue from Special order = 80*16 1,280.00 Less : Material costs = 80 *12 960.00 Less : Other Variable Costs = 80*3 240.00 Income from special order = 1280 - 960 - 240 80.00 Yes offer should be accepted as it will increase profit by $80 Note: Fixed Costs will not change due to special order since firm has excess capacity and Fixed costs do not change with volume