Decision: Reject / Accept

Deep Blue manufactures flotation vests in San Francisco, California. Deep Blue's contribution margin income statement for the most recent month contains the following data: (Click the icon to view the cost information.) Suppose Boat Safety Cruiselines wants to buy 5,100 vests from Deep Blue. Acceptance of the order will not increase Deep Blue's variable marketing and administrative expenses or any of its fixed expenses. The Deep Blue plant has enough unused capacity to manufacture the additional vests. Boat Safety Cruiselines has offered $10 per vest, which is below the normal sale price of $15 Read the requirements Requirement 1. Prepare an incremental analysis to determine whether Deep Blue should accept this special sales order. (Enter a "O" for any zero balances. Use parentheses or a minus sign to indicate a negative contribution margin and/or a decrease in operating income from the special order.) Total Order Incremental Analysis of Special Sales Order Decision Per Unit (5,100 units) 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. ldentify long-term factors Deep Blue should consider in deciding whether to accept the special sales order. In addition to determining the special order's effect on operating profits, Deep Blue's managers also should consider the following: O A. How will Deep Blue's competitors react? Will they retaliate by cutting their prices and starting a price war? O B. Will lowering the sale price tarnish Deep Blue's image as a quality brand? OC. Will Deep Blue's other customers find out about the lower sale price Deep Blue accepted from Boat Safety? If so, will these other customers demand lower sale prices? O D. All of the above. O E. None of the above