Buoy manufactures flotation vests in San Diego, California. Buoy's contribution margin income statement for the most recent month contains the following data:
Contribution Margin Income Statement (Variable Costing)
For Sales Volume of 29,000 Units
Total Sales Revenue: $406,000
Less variable expenses:
- Variable manufacturing costs (DM, DL, Variable MOH): $87,000
- Variable operating expenses (selling and administrative): $110,000
Contribution margin: $209,000
Less fixed expenses:
- Fixed manufacturing overhead: $123,000
- Fixed operating expenses (selling and administrative): $88,000
Operating income (loss): $(2,000)
Suppose Summer Sports Cruiselines wants to buy 4,800 vests from Buoy. Acceptance of the order will not require any variable selling and administrative expenses. The special order will not affect fixed expenses. The Buoy plant has enough unused capacity to manufacture the additional vests. Summer Sports Cruiselines has offered $9 per vest, which is below the normal sale price of $14.
Requirement 1. Prepare an incremental analysis to determine whether Buoy should accept this special sales order. (Enter a "0" for any zero balances. Use parentheses or a minus sign to indicate a negative contribution margin and/or a decrease in operating income from the special order.)
Incremental Analysis of Special Sales Order Decision
Per Unit Total Order (4,800 units)
Revenue from special order
Less variable expense associated with the order:
- Variable manufacturing costs
Contribution margin
Less: Additional fixed expenses associated with the order
Increase (decrease) in operating income from the special order
