1. Prepare an incremental analysis to determine whether Aqua Fun should accept this special sales order. 2. Identify long-term factors Aqua Fun should consider in deciding whether to accept the special sales order. Aqua Fun manufactures flotation vests in Philadelphia, Pennsylvania. Aqua Fun's contribution margin income statement for the most recent month contains the following data: Click the icon to view the cost information.) Suppose Water Fun Cruiselines wants to buy 5,300 vests from Aqua Fun. Acceptance of the order will not increase Aqua Fun's variable marketing and administrative expenses or any of its fixed expenses. The Aqua Fun plant has enough unused capacity to manufacture the additional vests. Water Fun Cruiselines has offered $6 per vest, which is below the normal sale price of $14. Total Order (5,300 units) Per Unit Incremental Analysis of Special Sales Order Decision Revenue from special order Less variable expense associated with the order: Variable manufacturing costs Contribution margin Less: Additional fixed expenses associated with the order Increase (decrease) in operating income from the special order Decision: Requirement 2. Identify long-term factors Aqua Fun should consider in deciding whether to accept the special sales order. In addition to determining the special order's effect on operating profits, Aqua Fun's managers also should consider the following: O A. Will lowering the sale price tarnish Aqua Fun's image as a quality brand? O B. Will Aqua Fun's other customers find out about the lower sale price Aqua Fun accepted from Water Fun? If so, will these other customers demand lower sale prices? OC. How will Aqua Fun's competitors react? Will they retaliate by cutting their prices and starting a price war? OD. All of the above. O E. None of the above. 1. Prepare an incremental analysis to determine whether Aqua Fun should accept this special sales order. 2. Identify long-term factors Aqua Fun should consider in deciding whether to accept the special sales order. Aqua Fun manufactures flotation vests in Philadelphia, Pennsylvania. Aqua Fun's contribution margin income statement for the most recent month contains the following data: Click the icon to view the cost information.) Suppose Water Fun Cruiselines wants to buy 5,300 vests from Aqua Fun. Acceptance of the order will not increase Aqua Fun's variable marketing and administrative expenses or any of its fixed expenses. The Aqua Fun plant has enough unused capacity to manufacture the additional vests. Water Fun Cruiselines has offered $6 per vest, which is below the normal sale price of $14. Total Order (5,300 units) Per Unit Incremental Analysis of Special Sales Order Decision Revenue from special order Less variable expense associated with the order: Variable manufacturing costs Contribution margin Less: Additional fixed expenses associated with the order Increase (decrease) in operating income from the special order Decision: Requirement 2. Identify long-term factors Aqua Fun should consider in deciding whether to accept the special sales order. In addition to determining the special order's effect on operating profits, Aqua Fun's managers also should consider the following: O A. Will lowering the sale price tarnish Aqua Fun's image as a quality brand? O B. Will Aqua Fun's other customers find out about the lower sale price Aqua Fun accepted from Water Fun? If so, will these other customers demand lower sale prices? OC. How will Aqua Fun's competitors react? Will they retaliate by cutting their prices and starting a price war? OD. All of the above. O E. None of the above
