Damon, Inc. currently produces 30,000 sweatshirts each year for its regular customers and charges $30 per sweatshirt. Damon has capacity to produce an additional 5,000 sweatshirts if sales grow in the future. Variable costs total $16 per sweatshirt and annual fixed costs total $60,000. The city of Loveland recently approached the company and proposed a one- time purchase of 1,000 sweatshirts for $24 each. Should Damon accept the special order proposal? a. No, because total fixed costs will increase by $2,000 and total sales will decline by $6,000 from this special order. b. Yes, because they will make $6 per shirt from this special order. c. Yes, because they will make $8 per shirt from this special order. d. No, because they will lose $6 per shirt from this special order. e. None of the answer choices is correct.
Damon, Inc. currently produces 30,000 sweatshirts each year for its regular customers and charges $30 per sweatshirt. Damon has capacity to produce an additional 5,000 sweatshirts if sales grow in the future. Variable costs total $16 per sweatshirt and annual fixed costs total $60,000. The city of Loveland recently approached the company and proposed a one- time purchase of 1,000 sweatshirts for $24 each. Should Damon accept the special order proposal? a. No, because total fixed costs will increase by $2,000 and total sales will decline by $6,000 from this special order. b. Yes, because they will make $6 per shirt from this special order. c. Yes, because they will make $8 per shirt from this special order. d. No, because they will lose $6 per shirt from this special order. e. None of the answer choices is correct.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Damon, Inc. currently produces 30,000
sweatshirts each year for its regular customers
and charges $30 per sweatshirt. Damon has
capacity to produce an additional 5,000
sweatshirts if sales grow in the future. Variable
costs total $16 per sweatshirt and annual fixed
costs total $60,000. The city of Loveland recently
approached the company and proposed a one-
time purchase of 1,000 sweatshirts for $24 each.
Should Damon accept the special order
proposal?
a. No, because total fixed costs will increase by
$2,000 and total sales will decline by $6,000 from
this special order.
b. Yes, because they will make $6 per shirt from
this special order.
c. Yes, because they will make $8 per shirt from
this special order.
d. No, because they will lose $6 per shirt from this
special order.
e. None of the answer choices is correct.
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