Doherty Company is considering replacing the individual printers each employee in the corporate office currently uses with a network printer located in a central area. The network printer is more efficient and would, therefore, cost less to operate than the individual printers. However, most of the office staff think having to use a centralized printer would be inconvenient. They prefer to have individual printers located at each desk. Identify the following information as financial or nonfinancial and relevant or irrelevant. The first item has been completed as an example. (Identify the items listed with an "X" for each item as financial or nonfinancial and relevant or irrelevant. Leave unused cells blank.) Financial Nonfinancial Relevant Irrelevant X 1. Amount paid for current printers 2. Resale value of current printers 3. Cost of new printer 4. Operating costs of current printers 5. Operating costs of new printers 6. Employee morale Data Table Nautical Income Statement For the Month Ended May 31, 2018 Sales in Units 33,000 495,000 Net Sales Revenue Variable Costs: Manufacturing 99,000 106,000 Selling and Administrative 205,000 Total Variable Costs Contribution Margin Fixed Costs: 290,000 Manufacturing 125,000 91,000 Selling and Administrative Print Done i Requirements 1. 2. Identify each cost in the income statement as either relevant or irrelevant to Nautical's decision. Prepare a differential analysis to determine whether Nautical should accept this special sales order. Identify long-term factors Nautical should consider in deciding whether to accept the special sales order. 3. Print Done Nautical manufactures flotation vests in Charleston, South Carolina. Nautical's contribution margin income statement for the month ended May 31, 2018, contains the following data: (Click the icon to view the cost information.) Suppose Overtown wishes to buy 3,900 vests from Nautical. Nautical will not incur any variable selling and administrative expenses on the special order. The Nautical plant has enough unused capacity to manufacture the additional vests. Overtown has offered $4 per vest, which is below the normal sales price of $15. Read the requirements. Requirement 1. Identify each cost in the income statement as either relevant or irrelevant to Nautical's decision. Variable Manufacturing Costs Variable Selling and Administrative Costs Fixed Manufacturing Costs irrelevant relevant Fixed Selling and Administrative Costs Requirement 2. Prepare a differential analysis to determine whether Nautical should accept this special sales order. (Enter decreases to revenue or increases to costs with a parentheses or minus sign.) Tin onerating income Requirement 2. Prepare a differential analysis to determine whether Nautical should accept this special sales order. (Enter decreases to revenue or increases to costs with a parentheses or minus sign.) in operating income v Decision: Requirement 3. Identify long-term factors Nautical should consider in deciding whether to accept the special sales order. In addition to determining the special order's effect on operating profits, Nautical's managers also should consider the following: O A. Will the special order customer come back again and again, asking for the same reduced price? B. Will Nautical's other customers find out about the lower sale price Nautical accepted from Overtown? If so. will these other O Decision: Requirement 3. Identify long-term factors Nautical should consider in deciding whether to accept the special sales order. In addition to determining the special order's effect on operating profits, Nautical's managers also should consider the following: O A. Will the special order customer come back again and again, asking for the same reduced price? O B . Will Nautical's other customers find out about the lower sale price Nautical accepted from Overtown? If so, will these other customers demand lower sale prices? O C. How will Nautical's competitors react? Will they retaliate by cutting their prices and starting a price war? O D. All of the above O E. None of the above
