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 ….. 31000
Sales revenue….. $434000
Variable expenses:
Manufacturing…………………………. 186000
Marketing and administrative….. 110000
Total variable expenses……………. 296000
Contribution margin….. ......................…...138000
Fixed expenses:
Manufacturing….. ……….130000
Marketing and administrative…..92000
Total fixed expenses……………….222000
Operating income (loss)…………...$84000
Suppose Boats - n – more wishes to buy 4600 vest from deep blue. Acceptance of the order will not increase deep blue’s variable marketing and administrative expenses. The deep blue has enough unused capacity to manufacture the additional vest. Boats-n-more has an offer of 5$ 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 except the special sales order.
2. Identify long term factors deep blue should consider in deciding whether to accept the special sales order.
Answer will be sent by email as attachment.
