Sea Blue manufactures flotation vests in Charleston, South Carolina. Sea Blue's contribution margin income statement for the month ended December 31, 2018, contains the following data:
SEA BLUE
Income Statement
For the Month Ended December 31, 2018
Sales in Units ............................................... 32,000
Net Sales Revenue .................................... $608,000
Variable Costs:
Manufacturing .............................................. 96,000
Selling and Administrative ............................. 108,000
Total Variable Costs .................................... 204,000
contribution margin .................................... 404,000
Fixed Costs:
Manufacturing .......................................... 124,000
Selling and Administrative ............................. 94,000
Total Fixed Costs ...................................... 218,000
Operating Income ................................... $ 186,000
Suppose Overboard wishes to buy 4,600 vests from Sea Blue. Sea Blue will not incur any variable selling and administrative expenses on the special order. The Sea Blue plant has enough unused capacity to manufacture the additional vests. Overboard 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 Sea Blue's decision.
2. Prepare a differential analysis to determine whether Sea Blue should accept this special sales order.
3. Identify long-term factors Sea Blue should consider in deciding whether to accept the special sales order?