Nautical manufactures flotation vests in Tampa, Florida. Nautical's contribution margin income statement for the month ended December 31, 2018, contains the following data:
NAUTICAL
Income Statement
For the Month Ended December 31, 2018
Sales in Units .................................... 29,000
Net Sales Revenue ........................... $551,000
Variable Costs:
Manufacturing ................................ 116,000
Selling and Administrative .................. 111,000
Total Variable Costs ......................... 227,000
contribution margin ......................... 324,000
Fixed Costs:
Manufacturing ................................ 123,000
Selling and Administrative .................... 92,000
Total Fixed Expenses ........................ 215,000
Operating Income .......................... $ 109,000
Suppose Water Works wishes to buy 4,800 vests from Nautical. Nautical will not incur any variable selling and administrative expenses on the special order. The Nautical plant has enough unused capacity to manufacture the additional vests. Water Works has offered $15 per vest, which is below the normal sales price of $19.
Requirements
1. Identify each cost in the income statement as either relevant or irrelevant to Nautical's decision.
2. Prepare a differential analysis to determine whether Nautical should accept this special sales order.
3. Identify long-term factors Nautical should consider in deciding whether to accept the special sales order?