Jumeirah company makes game jerseys for athletic teams. The Sharjah Soccer Club

ID: 2561952 • Letter: J

Question

Jumeirah company makes game jerseys for athletic teams. The Sharjah Soccer Club has offered to buy 100 jerseys for the teams in its league for $30 per jersey. The team price for such jerseys normally is $36 an 80% markup over Jumeirah's purchase price of $20 per jersey Jumeirah company 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 $12,000 and other fixed costs allocated to jersey are $6,000. Jumeirah makes 2,000 jerseys per year, so the fixed cost is $9 per jersey. The equipment is used only for printing jerseys and stands idle 75% of the usable time. about of Jumeirah turned down the offer, saying," if we sell at 530 and our cost is s31, we lose t afford to lose money on money on each jersey we sell. We would like to help your league, but we can' the sale. (a). Compute the amount by which the operating income of Jumeirah would change if it accepted Sharjah Soccer Club's offer. (b) If you were the manager of Jumeirah company, Would you accept the offer? List a qualitative consideration that would influence your decision. (4 marks)

Explanation / Answer

a) Below are the workings to explain changes in Jumeirah's operating income if they accepted Sharjah Soccer Club's offer.

Per Jersey

Per 100 Jerseys

Selling Price

$30

$3,000

Variable Cost

$22

$2,200

Fixed Cost

$900

Contribution

-$1

-$100

Jumeirah will incur -$100 loss if they accepted the said offer from Sharjah Soccer Club.

b) If I would be the manager of Jumeirah company then i would not have accepted this offer, we will incurred -$100 loss if we would have accepted this offer, Total cost per jersey (including printing and Jersey) is $31 and if we sell jersey for $31, then we would have incurred a loss of (-$1) per Jersey, no business man wants to incur loss by selling goods at lesser price than his Cost of goods sold.

If Sharjah Soccer club revise their offer and decides to buy Jersy at $33 then Jumeirah would have tried to accept this offer. The increase of $3 in there purchase price per Jersy would not fetch good amount of profit, however it does make Jumeirah offered to lose money.