Question
Summer Fun manufactures flotation vests in Charleston, South Carolina. Summer Fun's contribution margin income statement for the month ended March 31, 2016, contains the following
Summer Fun manufactures flotation vests in Charleston, South Carolina. Summer Fun's
contribution margin income statement for the month ended March 31, 2016, contains the following data:
| Summer Fun |
| ||
| Income Statement |
| ||
| For the Month Ended March 31, 2016 |
|
| Sales in Units | 42,000 |
| Sales Revenue | $588,000 |
| Variable Costs: |
|
| Manufacturing | 210,000 |
| Selling and Administrative | 106,000 |
| Total Variable Costs | 316,000 |
| Contribution Margin | 272,000 |
| Fixed Costs: |
|
| Manufacturing | 127,000 |
| Selling and Administrative | 92,000 |
| Total Fixed Costs | 219,000 |
| Operating Income | $53,000 |
Suppose Rafter wishes to buy 4,200 vests from Summer FunSummer Fun. summer fun will not incur any variable selling and administrative expenses on the special order. The
Summer FunSummer Fun plant has enough unused capacity to manufacture the additional vests. Rafter
has offered $10 per vest, which is below the normal sales price of $14.
1. |
Identify each cost in the income statement as either relevant or irrelevant to Summer Fun's decision. | ||||||||
2. |
Prepare a differential analysis to determine whether Summer Fun should accept this special sales order. | ||||||||
3. |
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