Deep Blue manufactures flotation vests in Charleston, South Carolina. Deep Blue€™s contribution margin income statement for the month ended December 31, 2016, contains the following data:

Suppose Overboard wishes to buy 4,700 vests from Deep Blue. Deep Blue will not incur any variable selling and administrative expenses on the special order. The Deep Blue plant has enough unused capacity to manufacture the additional vests. Overboard has offered $7 per vest, which is below the normal sales price of $16.
Requirements
1. Identify each cost in the income statement as either relevant or irrelevant to Deep Blue€™s decision.
2. Prepare a differential analysis to determine whether Deep Blue should accept this special sales order.
3. Identify long-term factors Deep Blue should consider in deciding whether to accept the special sales order.

Transcribed Image Text:

DEEP BLUE Income Statement For the Month Ended December 31, 2016 Sales in Units Sales Revenue Variable Costs: 30,000 $480,000 Manufacturing Selling and Administrative Total Variable Costs Contribution Margin Fixed Costs: 150,000 110,000 260,000 220,000 Manufacturing Selling and Administrative 121,000 85,000 206,000 $ 14,000 Total Fixed Costs Operating Income