Aqua Fun
Income Statement
For the Month Ended October 31, 2024
Sales in Units	30,000
Net Sales Revenue	$600,000
Variable Costs:
Manufacturing	150,000
Selling and Administrative	103,000
Total Variable Costs	253,000
Contribution Margin	347,000
Fixed Costs:
Manufacturing	127,000
Selling and Administrative	86,000
Total Fixed Costs	213,000
Operating Income	$134,000

suppose Overtown wishes to buy 4,200 vests fromAqua Fun. Aqua Fun will not incur any variable selling and administrative expenses on the special order. The Aqua Fun

plant has enough unused capacity to manufacture the additional vests. Overtown has offered $12 per vest, which is below the normal sales price of $20.

Requirement 1. Identify each cost in the income statement as either relevant or irrelevant to Aqua Fun's decision.

Variable Manufacturing Costs

irrelevant

relevant

Variable Selling and Administrative Costs

irrelevant

relevant

Fixed Manufacturing Costs

irrelevant

relevant

Fixed Selling and Administrative Costs

irrelevant

relevant

Requirement 2. Prepare a differential analysis to determine whether Aqua Fun

should accept this special sales order. (Enter decreases to revenue or increases to costs with a parentheses or minus sign.)

		in operating income

Decision:

Accept the special order

Do not accept the special order

Requirement 3. 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:

A.Will

Aqua Fun's

other customers find out about the lower sale price

Aqua Fun

accepted from

Overtown?

If so, will these other customers demand lower sale prices?

B.

Will the special order customer come back again and again, asking for the same reduced price?

C.How will

Aqua Fun's

competitors react? Will they retaliate by cutting their prices and starting a price war?

D.

All of the above

E.

None of the above