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 relevant Requirement 1. Identify each cost in the income statement as either relevant or irrelevant to Aqua Fun's decision. Variable Manufacturing Costs 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 (Click to Help Me Solve This Ice of $16 d the Question Help juiremel iable Ma fiablo Se ed Manu ed Sellin quiremel ts with a ases to Aqua Fun manufactures flotation vests in Charleston, South Suppose Overboard wishes to buy 3,800 vests from Aqua Fun. Carolina. Aqua Fun's contribution margin income statement for the Aqua Fun will not incur any variable selling and administrative month ended July 31, 2018, contains the following data: expenses on the special order. The Aqua Fun plant has enough Click the icon to view the cost information) unused capacity to manufacture the additional vests. Overboard has offered $9 per vest, which is below the normal sales price of Read the requirements $16. Requirement 1. Identify each cost in the income statement as either relevant or irrelevant to Summer Fun's decision Relevant information is expected future data that differs among alternatives. Relevant costs are costs that will affect Summer Fun's decision to accept or reject the special order. Irrelevant costs are costs that do not affect a decision. Carefully review the cost categories as seen in Summer Fun's income statement and consider which costs are relevant to this decision. Variable selling and administrative costs will remain the same because no special efforts were made to get this sale. Fixed costs are unchanged because Summer Fun has enough unused capacity to produce more vests without adding more facilities. Variable manufacturing costs will, however, change, if the company accepts the special order since these are the costs that the company must incur to produce the additional vests. Requirement 2. Prepare a differential analysis to determine whether Summer Fun should accept this special sales order. A common approach to making short-term business decisions is called 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 differ under each alternative. Using this approach, we leave out irrelevant informationthe revenues and costs that will not differ 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 Ratter 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 3.900 39.000 10 Bses to Our analysis of costs will include only the variable manufacturing costs, as they are the only additional costs that will be incurred by equiremel accepting the special order. In order to compute the increase in variable manufacturing costs as a result of accepting the order, we must osts with a first 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 expense per vest. Variable manufacturing costs 1 Sales in units Variable manufacturing cost per unit 90,000 30,000 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 x Special order units manufacturing costs from special order 3,900 11,700 Now complete the differential analysis to determine whether Summer Fun should accept this special sales order. Label and calculate the Increase or decrease in operating income. Remember, 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 result of accepting the special sales order. (Enter decreases to profits with a parentheses or minus sign.) uses to quireme ats with a Expected increase in revenue $ 39,000 Expected increase in variable manufacturing costs (11,700) 27,300 Expected increase in operating income Carefully review the results of the incremental analysis you prepared above and the decision rule below to determine whether Summer Fun should accept or reject the special sales order. DECISION RULE: Accept special pricing order? 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 Summer Fun should consider in doolding whether to accept the special sales order. Requirement 3. Identify long-term factors Summer Fun should consider in deciding whether to accept the special sales order. 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 ecial 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 are "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. 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. RI Data Table levant to Aqua Fun's decision, ra F FI Requirements 31,000 Rd $ 496,000 Aqua Fun Income Statement For the Month Ended July 31, 2018 Sales in Units Net Sales Revenue Variable Costs: Manufacturing Selling and Administrative Total Variable Costs Contribution Margin Fixed Costs: Manufacturing Selling and Administrative Total Fixed Costs 93,000 109,000 1. Identify each cost in the income statement as either relevant or irrelevant to Aqua Fun's decision 2. Prepare a differential analysis to determine whether Aqua Fun should accept this special sales order. 3. Identify long term factors Aqua Fun should consider in deciding whether to accept the special sales order. 202.000 294,000 Print Done 127,000 89,000 NG 216,000 78,000 Operating Income Print Done he icon to vie WITH th Hut can sell all the drip quirements. Data Table ent 1. What is Ned's Bed aining factor is linear fe Hd Ned stock to maximiz the product mix analysis Ned's Beach Hut sells three types of cold drinks: 1. ToBe in 12-oz. cans for $1.60 per can 2. ToBe in 20-oz. bottles for $2.00 per bottle 3. Pretty Pop in 20-oz. bottles for $2.15 per bottle Ned's Beach Hut pays its suppliers: 1. $0.25 per 12-oz. can of ToBe 2. $0.60 per 20-oz. bottle of Tobe 3. $0.70 per 20-oz. bottle of Pretty Pop Ned's Beach Hut's monthly fixed costs include: Hut rental 380 Refrigerator rental Ned's salary 1,650 2,090 Total fixed costs e per unit cost per unit on margin per unit linear foot of shelf space on margin per linear foot 60 Print Done Requirements 1. What is Ned's Beach Hur's constraining factor? What should Ned stock to maximize profits? 2. Suppose Ned's Beach Hut refuses to devote more than 85 linear feet to any individual product. Under this condition, how many linear feet of each drink should Ned's stock? How many units of each product will be available for sale each day? Each morning, Ned Rouse stocks the drink case at Ned's Beach Hut in Myrtle Beach, South Carolina. The drink case has 130 linear feet of refrigerated drink space. Each linear foot can hold either seven 12-ounce cans or five 20-ounce bottles Click the icon to view the information on the cold drinks.) Ned's Beach Hut can sell all the drinks stocked in the display case each morning. Read the requirements Requirement 1. What is Ned's Beach Hut's constraining factor? What should Ned stock to maximize profits? The constraining factor is linear feet of shelf space What should Ned stock to maximize profits? Complete the product mix analysis to determine which product would maximize Ned's profits. ToBe To Be Pretty Pop 12 oz. Cans 20 oz. Bottles 20 oz. Bottles 8.20 8.20 Sales price per unit Variable cost per unit Contribution margin per unit Units per linear foot of shelf space Contribution margin per linear foot of shelf space X X constra at should Each morning, Ned Rouse stocks the drink case at Ned's Beach Hut in Myrtle Beach, South Carolina. The drink case has 130 linear feet of refrigerated drink space. Each linear foot can hold either seven 12-ounce cans or five 20-ounce bottles. Click the icon to view the information on the cold drinks.) Ned's Beach Hut can sell all the drinks stocked in the display case each morning. Read the requirements mplete the Requirement 1. What is Joel's Beach Hut's constraining factor? What should Joel stock to maximize profits? ns price Constraints restrict the production or sale of a product, and these constraints vary from company to company. For a manufacturer, the constraint may be labor hours, machine hours, or available materials. Use the information provided to assist you in determining Joels iable col constraint tribution its per lid tribution Companies facing constraints consider the following questions: What constraint(s) stop(s) the company from making (or displaying) all the units the company can sell? Which products offer the highest contribution margin per unit of the constraint? . Would emphasizing one product over another affect fixed costs? To manage constraints, managers must decide which products to make first (emphasize). They want to maximize profits. In order to do this, Joel should use the contribution margin per unit of the constraint to make this decision. Whichever product results in the highest contribution margin per linear foot of shelf space will be the product that the company should focus on purchasing and selling as this product will provide more contribution margin for each unit. Begin by referring to the information provided and entering in the sales price and variable cost per unit for each product Licious.Ade Licious.Ade 12 oz. Cans Pretty Pop 20 oz. Bottles 20 oz. Bottles Licious-Ade Licious-Ade Pretty Pop 12 oz. Cans 20 oz. Bottles 20 oz. Bottles Salon price Sales price per unit $ 1.50 $ 1.80 $ 2.30 Wariable col Variable cost per unit 0.40 0.60 0.65 Contributio Next calculate the contribution margin per unit and enter in the units per linear foot of shelf space. Remember that the contribution Units per llin margin per unit doesn't necessarily tell us which product to emphasize. We want to emphasize the product that provides us with the most contribution margin per constraining factor. In this example, the constraining factor is feet of display space. Recall that the units per liner Contributio foot of shell space, which is provided in the information represents the number of cans or bottles that can be displayed per each linear foot Licious-Ade Licious.Ada Pretty Pop 12 oz. Cans 20 oz. Bottles 20 oz. Bottles Soles prio per unit $ 1.50 $ 1.80 $ 2.30 0.40 0.60 Variable cost per unit 0.65 Contribution margin per unit 1.10 1.20 1.65 Units ner linear font of shelf Now complete the analysis by calculating the contribution margin per linear foot of shelf space. Assuming that there are no constraints on demand (that Joel will be able to sell all of the beverages that it displays) Joel will want to sell the product that results in the most Sales price contribution margin per linear foot of shelf space. Go ahead and compute this amount for each of the products now. Variable cof Licious-Ade Licious.Ade Pretty Pop Contributor 12 oz. Cans 20 oz. Bottles 20 oz. Bottles Units per lin Sales price per unit $ 1.50 $ 1.80 $ 2.30 Contribution Variable cost per unit 0.40 0.60 0.65 Contribution margin per unit 1.10 1.20 1.65 6 Units per linear foot of shelf space 6.60 3.60 4.95 Contribution margin per linear foot of shelf space 3 NO Requirement 2. Suppose Joel's Beach Hut refuses to devote more than 55 linear feet to any individual product. Under this condition, how many linear feet of each drink should Joel's stock? How many units of each product will be available for sale each day? Sales price A new constraint has been added to Joel's product mix. No more than 55 linear feet can be used to display a single product. We have already determined in the previous requirement that the 12 oz. cans of Licious - Ade provide the company with the most contribution Variable col margin per linear foot. Therefore, Joel's will want to use the maximum amount of linear-feet, 55 linear feet in this case, to display the 12 Contribution oz. cans of Licious - Ade. Any remaining linear feet (95 total near feet available less the 55 linear feet used to display the product that produces the highest contribution margin per linear foot) should be used to stock the product that produces the next highest contribution Units per lin margin per linear foot. Review the product mix analysis that you completed above to determine which produce produces the second highest contribution margin per linear foot. Contributio Joel should stock his shelves as follows: First stock 55 linear ft. with the product that has the highest contribution margin 12 oz. cans of Licious-Ade Next stock 40 linear ft. with the product that has the middle contribution margin/t --- 20 oz. bottles of Pretty Pop ntribution How many units of each product will be available for sale each day? Now calculate the units available for sale using the linear feet per product that you determined in the preceding step and the number of units that can be displayed per each linear foot as provided in the information Units per Linear feel linear foot Units for sale Licious-Ade in 12 oz. cons: 55 Pretty Pop in 20 oz. bottles 6 330 con 120 bottles 40