Sharman Athletic Gear Incorporated (SAG) is considering a special order for 15,000 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 full manufacturing cost per hat is $3.50, which includes $1.50 fixed overhead cost related to plant capacity and equipment. ETU has made a firm offer of $35,000 for the hats, and Sharman, considering the price to be far below production costs, decides to decline the offer. Required: 1-a. Determine the total cost of the special order. Total cost of the special order 1-b. In terms of maximizing short-term operating profit, did Sharman make the wrong decision in declining the offer from ETU? O Yes O No
Sharman Athletic Gear Incorporated (SAG) is considering a special order for 15,000 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 full manufacturing cost per hat is $3.50, which includes $1.50 fixed overhead cost related to plant capacity and equipment. ETU has made a firm offer of $35,000 for the hats, and Sharman, considering the price to be far below production costs, decides to decline the offer. Required: 1-a. Determine the total cost of the special order. Total cost of the special order 1-b. In terms of maximizing short-term operating profit, did Sharman make the wrong decision in declining the offer from ETU? O Yes O No
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Sharman Athletic Gear Incorporated (SAG) is considering a special order for 15,000 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
full manufacturing cost per hat is $3.50, which includes $1.50 fixed overhead cost related to plant capacity and equipment. ETU has
made a firm offer of $35,000 for the hats, and Sharman, considering the price to be far below production costs, decides to decline the
offer.
Required:
1-a. Determine the total cost of the special order.
Total cost of the special order
1-b. In terms of maximizing short-term operating profit, did Sharman make the wrong decision in declining the offer from ETU?
Yes
O No
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