Aqua Fun manufactures flotation vests in Charleston, South Carolina. Aqua Fun's Suppose Overboard wishes to buy 3,800 vests from Aqua Fun. Aqua Fun will not contribution margin income statement for the month ended July 31, 2018, contains incur any variable selling and administrative expenses on the special order. The the following data: Aqua Fun plant has enough unused capacity to manufacture the additional vests. Click the icon to view the cost information) Overboard has offered $9 per vest, which is below the normal sales price of $16. Read the requirements Requirement 1. Identify each cost in the income statement as either relevant or irrelevant to Aqua Fun's decision Variable Manufacturing Costs relevant Variable Selling and Administrative Costs irrelevant Fixed Manufacturing Costs irrelevant Fixed Selling and Administrative Costs irrelevant 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 Aqua Fun manufactures flotation vests in Charleston, South Carolina. Aqua Fun's Suppos contribution margin income statement for the month ended July 31, 2018, contains incur an the following data: Aqua F (Click the icon to view the cost information.) Overbo Read the requirements. Requirement 1. Identify each cost in the income statement as either relevant or irrelevant to Variable Manufacturing Costs relevant Variable Selling and Administrative Costs irrelevant Fixed Manufacturing Costs irrelevant Fixed Selling and Administrative Costs irrelevant Requirement 2. Prepare a differential analysis to determine whether Aqua Fun should accep costs with a parentheses or minus sign.) 2 Expected decrease in revenue Expected increase in revenue Choose from any list or enter any number in the input fields and then click Check Answe incur any Aqua contribution margin income statement for the month ended July 31, 2018, contains the following data: (Click the icon to view the cost information.) Aqua Fun Overboard Read the requirements Requirement 1. Identify each cost in the income statement as either relevant or irrelevant to Aq Variable Manufacturing Costs relevant Variable Selling and Administrative Costs irrelevant Fixed Manufacturing Costs irrelevant Fixed Selling and Administrative Costs irrelevant Requirement 2. Prepare a differential analysis to determine whether Aqua Fun should accept th costs with a parentheses or minus sign.) Expected decrease in fixed manufacturing costs Expected decrease in selling and administrative costs Expected decrease in variable manufacturing costs Expected increase in fixed manufacturing costs Expected increase in selling and administrative costs Expected increase in variable manufacturing costs NGUL Choose from any list or enter any number in the input fields and then click Check Answer. 2 parts remaining Clear All Charleston, South Carolina. Aqua Fun's Suppose Overboard wishes to buy 3,800 vests. the month ended July 31, 2018, contains incur any variable selling and administrative ex Aqua Fun plant has enough unused capacity to nation.) Overboard has offered $9 per vest, which is be - Data Table in ts Aqua Fun Income Statement For the Month Ended July 31, 2018 Sales in Units 31,000 496,000 inal Net Sales Revenue $ decreas -) Variable Costs: Manufacturing Selling and Administrative Total Variable Costs 93,000 109,000 som 202,000 Contribution Margin 294,000 Fixed Costs: Manufacturing Selling and Administrative Total Fixed Costs 127,000 89,000 216,000 $ 78,000 Operating Income Print Done ncreases to Fixed Requirement 2. Prepare a differential analysis to determine whether Buoy should accept this special sales order. Fixed A common approach to making short-term business decisions is caled differential analysis. In this approach, the emphasis is on the difference in operating income between the alternative approaches. Differential analysis is also sometimes called incremental analysis Instead of looking at the company's entire income statement under each decision alternative, we just look at how operating income would Requin differ under each alternative. Using this approach, we leave out relevant information the revenues and costs that will not differ costs between alternatives Let's start by calculating the expected increase in revenues as a result of this special order. Remember to use the amount that Overtown is offering to pay for the vests when calculating the increase in revenues Sales price per unit * Special order units. Expected increase in sales from special order 4,100 28.700 Our analysis of costs will include only the variable manufacturing costs, as they are the only additional costs that will be incurred by accepting the special order. In order to compute the increase in variable manufacturing costs as a result of accepting the order, we must frst determine the variable manufacturing cost of producing each vest. We can do this by using the information provided in the contribution margin income statement data. Refer to the information provided and complete the calculation below to determine the variable manufacturing expenso per vest Variable manufacturing costs / Sales in units Variable manufacturing cost per unit NGU QU Fixed Fixed Requin costs ncreases Variable manufacturing costs Sales in units Variable manufacturing cost per unit $ 210,000 42,000 5 Now calculate the expected increase in variable manufacturing costs using the unit cost we calculated in the previous step. Expected increase in variable Variable manufacturing cost per unit * Special order units manufacturing costs from special order 4,100 20,500 Now complete the differential analysis to determine whether Buoy should accept this special sales order. Label and calculate the Increase or decrease in operating income. Remember, if the increase in revenues exceeds the increase in expenses, it will be expected that the company will have an increase in operating income as a result of accepting the special sales order. If the increase in revenues is less than the increase in expenses, it will be expected that the company will see a decrease in operating income as a reult of accepting the special sales order. (Enter decreases to profits with a parentheses or minus sign) Expected increase in revenue 28,700 Expected increase in variable manufacturing costs (20,500) Expected increase in oueratina income 8.200 NGU Q $ Fixed Carefully review the results of the incremental analysis you prepared above and the decision rule below to determine whether Buoy should accept or reject the special sales order. DECISION RULE: Accept special pricing order? Fixed Requin costs If the expected increase in revenues exceeds the expected increase in variable and fixed costs: If the expected increase in revenues is less than the expected increase in variable and fixed costs: Accept the special pricing order Reject the special pricing order Requirement 3. Identity long-term factors Buoy should consider in deciding whether to accept the special sales order. I Managers need to consider whether the special order will affect regular sales in the long run. Will regular customers find out about the special order and demand a lower price or take their business elsewhere? Will the special order customer come back again and again, asking for the same reduced price? Will the special order price start a price war with competitors? Managers should determine that the answers to these questions aro "no" or consider how customers will respond before accepting a special sales order. Managers may decide that any profit from the special order is not worth these risks. This question is complete. Move your cursor over or tap on the red arrows to see incorrect answers. All parts showing Close