The Hat Man's contribution margin income statement follows:

Sports King has offered to purchase 5,000 beanie caps for $0.70 per cap, which is considerably below the normal sale price of $1.20.

Acceptance of the order will not increase any of The Hat Man's marketing and administrative expenses. The Hat Man's plant has enough unused capacity to manufacture the additional boxes.

Requirements 

1. Prepare an incremental analysis to determine the impact on The Hat Man's operating income if the special sales order is accepted. Should The Hat Man accept the special order?

2. Identify long-term factors that The Hat Man should consider in deciding whether to accept the special sales order.

Transcribed Image Text:

Sales in units 360,000 Sales revenue $432,000 Variable expenses: Manufacturing $108,000 Marketing and administrative 53,000 Total variable expenses 161,000 Contribution margin 271,000 Fixed expenses: Manufacturing Marketing and administrative Total fixed expenses Operating income 156,000 40,000 196,000 $ 75,000