Tech Clothing Ltd

Essay

Tech Clothing Ltd.manufactures t-shirts.The Athletic Division sells its t-shirts for $9 to outsiders.T-shirts have manufacturing variable and fixed costs of $2.75 and $0.75, respectively.The division's total fixed manufacturing costs are $37,500 at the normal volume of 50,000 units.The Mountain Wear Division has offered to buy 5,000 t-shirts at the full cost of $3.50.They can sell the shirts for $10.The Athletic Division does not have excess capacity but could produce the 5,000 t-shirts using overtime.This would increase variable costs by $0.25 per unit and fixed costs by $6,250.Required:
Determine the effect on corporate operating income if the Athletic division: