Nautical Products, Inc., manufactures flotation vests in San Diego, California. Nautical Products' contribution margin income statement for

Question:

Nautical Products, Inc., manufactures flotation vests in San Diego, California. Nautical Products' income statement for the most recent month contains the following data:
Sales in units. . . . . . . . . . . . . . . . . . . . . .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,000
Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $435,000
Variable expenses:
Manufacturing . . . . . . . . . . . . . . . . . . . . . ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 87,000
Marketing and administrative. . . . . . . . . . . . . ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,000
Total variable expenses . . . . . . . . . . . . . . . . . . . . .... . . . . . . . . . . . . . . . . . . . . . . . . . $ 189,000
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $246,000
Fixed expenses:
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... . . . . . . . . . . . . . . . . . . . . . . . . 124,000
Marketing and administrative. . . . . . . . . . . . . . . . . . . . ....... . . . . . . . . . . . . . . . . . . . . . 88,000
Total fixed expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . $212,000
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . $ 34,000
Suppose Royal Cruiselines wishes to buy 5,600 vests from Nautical Products. Acceptance of the order will not increase Nautical Products' variable marketing and administrative expenses. The Nautical Products plant has enough unused capacity to manufacture the additional vests. Royal Cruiselines has offered $6 per vest, which is below the normal sale price of $15.
Requirements
1. Prepare an incremental analysis to determine whether Nautical Products should accept this special sales order.
2. Identify long-term factors Nautical Products should consider in deciding whether to accept the special sales order.
Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...