Super Shoes Company Manufactures Sneakers

question 122

Essay

Super Shoes Company manufactures sneakers. The Athletic Division sells its socks for $18 a pair to outsiders. Sneakers have manufacturing costs of $6.00 each for variable and $6.00 for fixed. The division's total fixed manufacturing costs are $315,000 at the normal volume of 70,000 units.
The European Division has offered to buy 15,000 Sneakers at the full cost of $12. The Athletic Division has excess capacity and the 15,000 units can be produced without interfering with the current outside sales of 70,000. The 85,000 volume is within the division's relevant operating range.
Explain whether the Athletic Division should accept the offer.

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Definitions:

Property Rights

The legal rights to use, control, and benefit from real estate or intellectual property, including the right to sell or lease such assets.

Open Ocean

The vast, deep areas of the sea that are not close to land, characterized by unique ecosystems and a wide variety of marine life.

ITQs

Individual Transferable Quotas, a regulatory tool designed to control the total allowable catches in fisheries by allocating specific quotas to fishers or companies.

Pacific Halibut

A species of flatfish native to the North Pacific Ocean, known for its importance to commercial fisheries.