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Safe Sailing manufactures flotation vests in Orlando, Florida. Safe Sailing's contribution margin income statement for the most recent month contains the following data: (Click the
Safe Sailing manufactures flotation vests in Orlando, Florida. Safe Sailing's contribution margin income statement for the most recent month contains the following data: (Click the icon to view the cost information.) Suppose McGregor Cruiselines wants to buy 4,800 vests from Safe Salling, Acceptance of the order will not increase Safe Sailing's variable marketing and administrative expenses or any of its fixed expenses. The Safe Sailing plant has enough capacity to manufacture the additional vests. McGregor Cruiselines has offered $6 per vest, which is below the normal sale price of $16. Read the requirements Requirement 1. Prepare an incremental analysis to determine whether Safe Sailing 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 operating income from the special order.) Total Order Per Unit (4,800 units) Incremental Analysis of Special Sales Order Decision 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) operating income from the special order Decision: v Requirement 2. Identify long-term factors Safe Sailing should consider in deciding whether accept the special sales order. In addition to determining the special order's effect on operating profits, Safe Sailing's managers also should consider the following: O A. How will Safe Sailing's competitors react? Will they retaliate by cutting their prices and starting a price war? OB. Will lowering the sale price tarnish Safe Sailing's image as a quality brand? OC. Will Safe Sailing's other customers find out about the lower sale price Safe Sailing accepted from McGregor? If so, will these other customers demand lower sale prices? OD. All of the above. O E. None of the above. Safe Sailing Contribution Margin Income Statement (Variable Costing) For Sales Volume of 31,000 Units Total Sales revenue $ 496,000 Less variable expenses: Variable manufacturing costs (DM, DL, Variable MOH) 93,000 110,000 Variable operating expenses (selling and administrative) Contribution margin 293,000 Less fixed expenses: Fixed manufacturing overhead $ 121,000 86,000 Fixed operating expenses (selling and administrative) $ 86,000 Operating income (loss)
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