Buoy manufactures flotation vests in Charleston, South Carolina. Buoy's contribution margin income statement for the month ended December 31, 2012, contains the following data:

Suppose Overboard wishes to buy 3,900 vests from Buoy. Acceptance of the order will not increase Buoy's variable marketing and administrative expenses. The Buoy plant has enough unused capacity to manufacture the additional vests. Overboard has offered $8.00 per vest, which is below the normal sale price of $17.
Requirements
1. Identify each cost in the income statement as either relevant or irrelevant to Buoy's decision.
2. Prepare an incremental analysis to determine whether Buoy should accept this special sales order.
3. Identify long-term factors Buoy should consider in deciding whether to accept the special salesorder.

Transcribed Image Text:

BUOY Income Statement For the Month Ended December 31, 2012 Sales in units 32,000 $ 544,000 Sales revenue Variable expenses: Manufacturing 96,000 Marketing and administrative 110,000 $ 206,000 Total variable expenses $ 338,000 Contribution margin Fixed expenses: 127,000 Manufacturing Marketing and administrative 95,000 Total fixed expenses $ 222,000 $ 116,000 Operating income