Athletic Supply (VAS) makes game jerseys for athletic teams. The F.C. Oak Bay soccer club has offered to buy 100 jerseys for the teams in its league for $15 per jersey. The team price for such jerseys normally is $18, an 80 percent markup over VAS’s purchase price of $10 per jersey. VAS 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. VAS 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 percent of the usable time. The manager of VAS 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. ?
1. Compute the amount by which the operating income of VAS would change if it accepted F.C. Oak Bay’s offer.
2. Suppose you were the manager of VAS. 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.
