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What is impact of decision on short-term operating profit

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Special Order; Relevant Costs; Opportunity Cost 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 page 442caps 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.

Problem 1. What is the impact of this decision on short-term operating profit, rounded to the nearest whole dollar?

Problem 2. How might this example be used to illustrate the notion of opportunity cost?

Reference no: EM132727872

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