The following monthly financial data are for Sport Socks Inc., a maker of socks tor runners. Sport Socks makes and sells 40,000 pairs each month to regular customers.

Sport Socks received an offer from a large sporting goods store to purchase 15,000 pairs of socks next month for $0.90 per pair. Assume Sport Socks can only produce up to 40,000 pairs of socks each month. Thus, any special orders would result in reduced sales to regular customers; however, fixed costs would not change.

Required

a. Using the differential analysis format presented in Table 7.9, determine whether Sport Socks would be better off rejecting the special order (Alternative 1) or accepting the special order (Alternative 2).

b. Summarize the result of accepting the special order using the format presented in Table 7.10.

Table 7.9

Table 7.10

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Total Monthly Data at 40,000 Pairs Per Unit Sales revenue $1.00 $40,000 Variable costs 0.70 28,000 Contribution margin $0.30 $12,000 Fixed costs 7,000 Profit $ 5,000