ACCOUNTING
Deep Blue manufactures floatation vests in Charleston, South Carolina. Deep Blue’s contribution margin income statement for the most recent month contains the following:
Sales in units ….. 31,000
Sales revenue….. $434,000
Variable expenses:
Manufacturing…………………………. 186,000
Marketing and administrative….. 110,000
Total variable expenses……………. 296,000
Contribution margin….. ......................…...138,000
Fixed expenses:
Manufacturing….. ……….130,000
Marketing and administrative…..92,000
Total fixed expenses……………….222,000
Operating income (loss)…………...$84000
Suppose Boats-n-more wishes to buy 4,600 vest from deep blue. Acceptance of the order will not increase Deep Blue’s variable marketing and administrative expenses. The Deep Blue has enough unused capacity to manufacture the additional vest. Boats-n-more has an offer of $5 per vest, which is below the normal sale price of $14.
Requirement
1. Prepare an increment analysis to determine whether or not Deep Blue should accept the special sales order.
2. Identify long term factors Deep Blue should consider in deciding whether to accept the special sales order.
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