F#9

Nautical

manufactures flotation vests in

Atlanta, Georgia.

Nautical's

contribution margin income statement for the most recent month contains the following data:

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(Click the icon to view the cost information.)Suppose

Overlook

Cruiselines wants to buy

5,400

vests from

Nautical.

Acceptance of the order will not require any variable selling and administrative expenses. The special order will not affect fixed expenses. The

Nautical

plant has enough unused capacity to manufacture the additional vests.

Overlook

Cruiselines has offered

$10

per vest, which is below the normal sale price of

$15.

Read the requirements

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.

Requirement 1. Prepare an incremental analysis to determine whether

Nautical

should accept this special sales order. (Enter a "0" 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	(5,400 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:

Accept the special sales order.

Reject the special sales order.

Requirement 2. 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:

A.How will

Nautical's

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

B.Will lowering the sale price tarnish

Nautical's

image as a quality brand?

C.Will

Nautical's

other customers find out about the lower sale price

Nautical

accepted from

Overlook?

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

D.

All of the above.

E.

None of the above.

Data table

Dialog content starts

	A	B
1	Nautical
2	Contribution Margin Income Statement (Variable Costing)
3	For Sales Volume of 28,000 Units
4		Total
5	Sales revenue	$420,000
6	Less variable expenses:
7	Variable manufacturing costs (DM, DL, Variable MOH)	168,000
8	Variable operating expenses (selling and administrative)	111,000
9	Contribution margin	$141,000
10	Less fixed expenses:
11	Fixed manufacturing overhead	$122,000
12	Fixed operating expenses (selling and administrative)	87,000
13	Operating income (loss)