Float-All manufactures flotation vests in Guelph. Float-All’s contribution margin income statement for the most recent month contains the following data:
Sales in units......................................................................................... 31,000
Sales revenue......................................................................................... $434,000
Variable expenses:
Manufacturing.................................................................................. $ 93,000
Marketing and administrative........................................................... 107,000
Total variable expenses..................................................................... 200,000
contribution margin............................................................................. 234,000
Fixed expenses:
Manufacturing.................................................................................. 126,000
Marketing and administrative........................................................... 90,000
Total fixed expenses ......................................................................... 216,000
Operating income.................................................................................. $ 18,000
Suppose Overton’s wants to buy 5,000 vests from Float-All. Acceptance of the order will not increase Float-All’s variable marketing and administrative expenses or any of its fixed expenses. The Float-All plant has enough unused capacity to manufacture the additional vests. Overton’s has offered $10 per vest, which is below the normal sale price of $14.
Requirements
1. Prepare an incremental analysis to determine whether Float-All should accept this special sales order.
2. Identify long-term factors Float-All should consider in deciding whether to accept the special sales order.