Buoy manufactures flotation vests in Charleston, South Carolina. Buoy’s contribution margin income statement for the month ended December 31, 2014, contains the following data:

Suppose Overboard wishes to buy 3,900 vests from Buoy. Acceptance of the order will not increase Buoy’s variable selling and administrative expenses. The Buoy plant has enough unused capacity to manufacture the additional vests. Overboard has offered $ 8 per vest, which is below the normal sales price of $ 17. 

Requirements 

1. Identify each cost in the income statement as either relevant or irrelevant to Buoy’s decision. 

2. Prepare a differential analysis to determine whether Buoy should accept this special sales order. 

3. Identify long- term factors Buoy should consider in deciding whether to accept the special sales order.

Transcribed Image Text:

BUOY Income Statement For the Month Ended December 31, 2014 Sales In Units Sales Revenue Variable Costs: 32,000 $ 544,000 Manufacturing Selling and Administrative Total Variable Costs Contribution Margin Fixed Costs: 96,000 110,000 206,000 338,000 Manufacturing Selling and Administrative 127,000 95,000 222,000 5 116,000 Total Fixed Costs Operating Income