Summer Fun manufactures flotation vests in Tampa, Florida. Summer Fun€™s contribution margin income statement for the month ended December 31, 2016, contains the following data:

Suppose Over-town wishes to buy 4,700 vests from Summer Fun. Summer Fun will not incur any variable selling and administrative expenses on the special order. The Summer Fun plant has enough unused capacity to manufacture the additional vests. Over-town has offered $10 per vest, which is below the normal sale price of $15.
Requirements
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. Identify long-term factors Summer Fun should consider in deciding whether to accept the special sales order.

Transcribed Image Text:

SUMMER FUN Income Statement For the Month Ended December 31, 2016 31,000 Sales in Units Sales Revenue Variable Costs 465,000 93,000 111,000 204,000 261,000 Manufacturing Selling and Administrative Total Variable Costs Contribution Margin Fixed Costs: 121,000 86,000 207,000 S 54,000 Manufacturing Selling and Administrative Total Fixed Expenses Operating Income