Sharman Athletic Gear Inc. (SAG) is considering a special order for 16,900 baseb

Question

Sharman Athletic Gear Inc. (SAG) is considering a special order for 16,900 baseball caps with the logo of East Texas University (ETU) to be purchased by the ETU alumni association. The ETU alumni association is planning to use the caps as gifts and to sell some of the caps at alumni events in celebration of the university's recent national championship by its baseball team. Sharman's cost per hat is $4.90, which includes $2.45 fixed cost related to plant capacity and equipment. ETU has made a firm offer of $48,000 for the hats, and Sharman, considering the price to be far below production costs, decides to decline the offer Required: Total cost of the special order 1-b. In terms of maximizing short-term operating profit, did Sharman make the wrong decision in declining O Yes

Explanation / Answer

1a) Total cost of the special order = (4.9-2.45)*16900 = 41405

2b) Yes sharman should make wrong decision in declining the offer from ETU

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