Special Order; Use of Opportunity Cost Information Sharman Athletic Gear Inc (SAG) is considering a special order for 15,000 baseball caps with the logo of East Texas University (ETU) to be purchased by the ETU alumni association. The ETU alumni association is planning to use the caps as gifts and to sell some of the caps at alumni events in celebration of the university’s recent national championship by its baseball team. Sharman’s cost per hat is $3.50 which includes $1.50 fixed cost related to plant capacity and equipment. ETU has made a firm offer of $35,000 for the hats, and Sharman, considering the price to be far below production costs, decides to decline the offer.
Required
1. Did Sharman make the wrong decision? Why or why not?
2. Consider the management decision-making approach at Sharman that resulted in this decision. How was opportunity cost included or not included in the decision? What decision biases are apparent in this decision?
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