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Nautical manufactures flotation vests in Tampa, Florida. Nautical's contribution margin income statement for the month ended December 31, 2024, contains the following data: (Click the
Nautical manufactures flotation vests in Tampa, Florida. Nautical's contribution margin income statement for the month ended December 31, 2024, contains the following data: (Click the icon to view the cost information.) Suppose Water Works wishes to buy 4,800 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. Water Works has offered $15 per vest, which is below the normal sales price of $19. Data table tt to Nautical's decision. ept this special sales order. (Enter decreases to revenue or increases to costs with a o accept the special sales order. yers also should consider the following: ted from Water Works? If so, will these other customers demand lower sale prices? 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 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.) 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: A. Will Nautical's other customers find out about the lower sale price Nautical accepted from Water Works? If so, will these other customers demand lower sale prices? B. How will Nautical's competitors react? Will they retaliate by cutting their prices and starting a price war? C. Will the special order customer come back again and again, asking for the same reduced price? D. All of the above E. None of the above
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