Deep Blue manufactures flotation vests in New Brunswick. Deep Blue’s contribution margin income statement for the most recent month contains the following data:
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) ...................................................................... $ (84,000)
Suppose Boats-n-More wishes to buy 4,600 vests from Deep Blue. Acceptance of the order will not increase Deep Blue’s variable marketing and administrative expenses. The Deep Blue plant has enough unused capacity to manufacture the additional vests. Boats-n-More has offered $5 per vest, which is below the normal sale price of $14.
Requirements
1. Prepare an incremental analysis to determine whether Deep Blue should accept this special sales order.
2. Identify long-term factors Deep Blue should consider in deciding whether to accept the special sales order.