Nina has been asked to assess the financial viability of a contract to supply the British football team with 20 sets of kit for the Olympic games, which would generate £75,000 of sales revenue. She has already had preliminary discussions with the Olympic committee and had to provide football kit samples at a cost of £2,400. Nina would buy-in each basic kit for £1,575 but print and add logos for the Olympic team, using materials costing £50 per kit. Her production supervisor, Anna, would have to take on temporary labour, costing £15,700 to meet the extra demand. She would dedicate one existing supervisor, who is currently underutilized, to oversee the project and whose salary for the period is £17,500. To cope with the specific logo designs, they would need to hire special equipment at a cost of £3,400. They could use their existing printing machine for much of the work at a depreciation charge of £2,700. Anna has also warned that they would have to turn down a tennis kit contract with an expected contribution of £15,200 should they accept the Olympic one. There would be an allocated charge to cover office costs of £3,200 on the Olympic contract. Using Table 14.2, assess which revenues and costs are relevant to the decision. Then compare the relevant costs to the relevant revenues to assess its financial feasibility. Should Smart Sports go ahead with the Olympic contract?

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Table 14.2 Revenue Olympic contract: assessing relevant costs Detail Total relevant Relevant/ non-relevant revenue/(costs) Contract value of Cost supplying football team kits Tennis kit contract Samples provided to secure contract Hire of logo machine Cost of basic kits Cost of logo materials Depreciation on printing machine Temporary labour Supervisor Allocated office costs Net benefit/(cost)