Arbagugu Products Share Co makes outdoor shirts. Data relating to the coming year's planned operations are as
Question:
- Arbagugu Products Share Co makes outdoor shirts. Data relating to the coming year's planned operations are as follows.
Sales (230,000 shirts) $4,140,000
Cost of goods sold 2,760,000
Gross profit $1,380,000
Selling and administrative expenses 805,000
Income $575,000
The factory has capacity to make 250,000 shirts per year. Fixed manufacturing costs included in cost of goods sold are $690,000. The only variable selling, general, and administrative expenses are a 10% sales commission and a $0.50 per shirt fee paid to a designer.
The GreatRun Ethiopia has approached Arbagugu offering to buy 15,000 shirts at $14 per shirt. The shirts are to be distributed to participants of the great run scheduled for September 2005. The sales manager of Arbagugu believes that accepting the offer would result in a loss because the average total cost of a shirt is $15.50 ([$2,760,000 + $805,000]/230,000). He feels that even though sales commissions would not be paid on the order, a loss would still result.
Require
- Determine whether the company should accept the offer.
- Suppose that the order was for 40,000 shirts instead of 15,000. What would the company's income be if it accepted the order?
- Assuming the same facts as in requirement "a" above, what is the lowest price that the company could accept and still earn $575,000?
- How many units of sales at the regular price could the company lose before it became profitable to accept the order in requirement "b" above?
Expert Answer:
Analysis of Arbagugu Products Share Cos Orders A Should the business take the deal Yes Arbagugu ought to accept the deal to sell 15000 shirts for 14 per This is the reason why Pay Attention to Contrib... View the full answer
