The following monthly financial data are for Sport Socks Inc., a maker of socks for runners. The company 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. Sport Socks can produce up to 60,000 pairs of socks a month, so the special order would not affect regular customer sales. Variable costs per pair will remain at \($0.70.\) This special order will cause fixed costs to increase by \($6,000\) for the coming month.

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

Transcribed Image Text:

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