Sharman Athletic Gear Inc (SAG) is considering a special order for 15,000 baseball caps with the logo

Question:

Sharman Athletic Gear Inc (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 cost per hat is $3.50 which includes $1.50 fixed 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. Did Sharman make the wrong decision? Why or why not?
2. Consider the management decision-making approach at Sharman that resulted in this decision. How was included or not included in the decision? What decision biases are apparent in this decision?

Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...