Special order decision and considerations (Learning Objective 2)

Buoy manufactures flotation vests in Tampa, Florida. Buoy’s contribution margin income statement for the most recent month contains the following data:

Suppose Overton’s wants to buy 5,000 vests from Buoy. Acceptance of the order will not increase Buoy’s variable marketing and administrative expenses or any of its fixed expenses. The Buoy plant has enough unused capacity to manufacture the additional vests. Overton’s has offered $10 per vest, which is below the normal sale price of $14.
Requirements 1. Prepare an incremental analysis to determine whether Buoy should accept this special sales order.
2. Identify long-term factors Buoy should consider in deciding whether to accept the special sales order.

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Sales in units Sales revenue. Variable expenses: Manufacturing Marketing and administrative. Total variable expenses. Contribution margin......... Fixed expenses: Manufacturing Marketing and administrative. Total fixed expenses........ Operating income......... 31,000 $434,000 $ 93,000 107,000 200,000 234,000 126,000 90,000 216,000 $ 18,000