Requirement 1. Identify each cost in the income statement as either relevant or irrelevant to Nautical's decision.

Variable Manufacturing Costs

irrelevant

relevant

Variable Selling and Administrative Costs

irrelevant

relevant

Fixed Manufacturing Costs

irrelevant

relevant

Fixed Selling and Administrative Costs

irrelevant

relevant

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

Decision:

Accept the special order

Do not accept the special order

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 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

Water Works?

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

C.How will

Nautical's

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

D.

All of the above

E.

None of the above

Nautical
Income Statement
For the Month Ended May 31, 2024
Sales in Units	29,000
Net Sales Revenue	$522,000
Variable Costs:
Manufacturing	87,000
Selling and Administrative	102,000
Total Variable Costs	189,000
Contribution Margin	333,000
Fixed Costs:
Manufacturing	130,000
Selling and Administrative	87,000
Total Fixed Costs	217,000
Operating Income	$116,000