Mystic Incorporated produces a variety of products that carry the logos of teams in the Canadian Football League (CFL). The company recently paid the league $85,000 for the rights to market a popular player jersey and immediately began production. The following information is available:
Number of jerseys manufactured: 25,000
Cost of jerseys manufactured: $ \$ 625,000 $
Amount of manufacturing costs paid to-date: $ \$ 410,000 $
Number of jerseys sold to-date: 0
Estimated future marketing costs: $ \$ 330,000 $
Anticipated selling price per jersey: $42 The CFL is about to file a lawsuit to stop jersey sales and is demanding another $50,000 from Mystic for the manufacturing rights. Conversations with Mystic's attorneys indicate that the league has a strong case and is likely to win the suit. If this situation arises, Mystic will be unable to recover any amounts paid to the CFL.
Required:
Mystic's sales department anticipates very strong demand and a sellout of all jerseys manufactured.
A. Determine the overall profitability of the jersey product line if Mystic settles the disagreement with the CFL and the anticipated sellout occurs.
B. Should the company pay the additional $50,000 demanded by the league or should the jersey program be dropped? Show computations to support your answer.

Question

Mystic Incorporated produces a variety of products that carry the logos of teams in the Canadian Football League (CFL). The company recently paid the league $85,000 for the rights to market a popular player jersey and immediately began production. The following information is available:
 Number of jerseys manufactured: 25,000
Cost of jerseys manufactured: $ \$ 625,000 $
Amount of manufacturing costs paid to-date: $ \$ 410,000 $
Number of jerseys sold to-date: 0
Estimated future marketing costs: $ \$ 330,000 $
Anticipated selling price per jersey: $42 The CFL is about to file a lawsuit to stop jersey sales and is demanding another $50,000 from Mystic for the manufacturing rights. Conversations with Mystic's attorneys indicate that the league has a strong case and is likely to win the suit. If this situation arises, Mystic will be unable to recover any amounts paid to the CFL.
Required:
Mystic's sales department anticipates very strong demand and a sellout of all jerseys manufactured.
A. Determine the overall profitability of the jersey product line if Mystic settles the disagreement with the CFL and the anticipated sellout occurs.
B. Should the company pay the additional $50,000 demanded by the league or should the jersey program be dropped? Show computations to support your answer.

Quizplus · Accepted Answer

The Answer of Mystic Incorporated produces a variety of products that carry the logos of teams in the Canadian Football League (CFL). The company recently paid the league $85,000 for the rights to market a popular player jersey and immediately began production. The following information is available:
 Number of jerseys manufactured: 25,000
Cost of jerseys manufactured: $ \$ 625,000 $
Amount of manufacturing costs paid to-date: $ \$ 410,000 $
Number of jerseys sold to-date: 0
Estimated future marketing costs: $ \$ 330,000 $
Anticipated selling price per jersey: $42 The CFL is about to file a lawsuit to stop jersey sales and is demanding another $50,000 from Mystic for the manufacturing rights. Conversations with Mystic's attorneys indicate that the league has a strong case and is likely to win the suit. If this situation arises, Mystic will be unable to recover any amounts paid to the CFL.
Required:
Mystic's sales department anticipates very strong demand and a sellout of all jerseys manufactured.
A. Determine the overall profitability of the jersey product line if Mystic settles the disagreement with the CFL and the anticipated sellout occurs.
B. Should the company pay the additional $50,000 demanded by the league or should the jersey program be dropped? Show computations to support your answer.

Mystic Incorporated Produces a Variety of Products That Carry the Logos