Question

Bedford Athletic Supply? (BAS) makes game jerseys for athletic teams. The B. D. Kaminski soccer club has offered to buy 140 jerseys for the teams in its league for $ 15 per jersey. The team price for such jerseys normally is $ 21?, a 75?% markup over? BAS's purchase price of $ 12 per jersey. BAS 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 $ 9,500?, and other fixed costs allocated to jerseys are $ 2,000. BAS makes about 2,300 jerseys per? year, so the fixed cost is $ 5 per jersey. The equipment is used only for printing jerseys and stands idle? 75% of the usable time. The manager of BAS turned down the? offer, saying,? "If we sell at $ 15 and our cost is $ 19?, 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."

Requirement 1. Compute the amount by which the operating income of BAS would change if it accepted B. D. Kaminski?'s offer by using the? contribution-margin approach. ?(For amounts with a? $0 balance, make sure to enter? "0" in the appropriate? cell.)


Effect of


Special Order
Units

Sales













Operating income

Answer 1

Amount by which the operating income of BAS will change if it accepted B.D. Kaminski's offer
	Normal sale	Special Order	Effect of Special Order
Units	2300	140	2440
Sales	$48,300	$2,100	$50,400
Less: Variable Cost
Purchase price	$27,600	$1,680	$29,280
Variable printing cost	$4,600	$280	$4,880
Total Variable Cost	$32,200	$1,960	$34,160
Contribution Margin	$16,100	$140	$16,240
Less: Fixed Cost
Equipment Fixed Cost	$9,500	$0	$9,500
Other Fixed Cost	$2,000	$0	$2,000
Total Fixed Cost	$11,500	$0	$11,500
Operating income	$4,600	$140	$4,740
If the BAS accept the special order, it will increase the operating income by $140..