Nautical manufactures flotation vests in Tampa, Florida. Nautical’s contribution margin income statement for the month ended December 31, 2018, contains the following data:

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.

Requirements

1. Identify each cost in the income statement as either relevant or irrelevant to Nautical’s decision.
2. Prepare a differential analysis to determine whether Nautical should accept this special sales order.
3. Identity long—term factors Nautical should consider in deciding whether to accept the special sales order.

 

NAUTICAL Income Statement For the Month Ended December 31, 2018 Sales in Units 29,000 Net Sales Revenue $ 551,000 Varlable Costs: Manufacturing 116,000 Selling and Administrative 111,000 Total Variable Costs 227,000 Contribution Margin 324.000 Fixed Costs: Manufacturing 123,000 Selling and Administrative 92,000 Total Fixed Expenses 215,000 Operating Income S 109,000