Deep Sea manufactures flotation vests in Charleston, South Carolina. Deep Sea's contribution margin income statement for the month ended August 31, 2024, containsthe following data:(Click the icon to view the cost information.)Read the requirements.Suppose Optimum wishes to buy 4,800 vests from Deep Sea. Deep Sea will not incur any variable selling and administrative expenses on the special order. TheDeep Sea plant has enough unused capacity to manufacture the additional vests. Optimum has offered $16 per vest, which is below the normal sales price of $20.Requirement 1. Identify each cost in the income statement as either relevant or irrelevant to Deep Sea's decision.Variable Manufacturing CostsVariable Selling and Administrative CostsFixed Manufacturing CostsFixed Selling and Administrative CostsRequirement 2. Prepare a differential analysis to determine whether Deep Sea should accept this special sales order. (Enter decreases to revenue or increases to costs with a parentheses or minus sign.)Decision:in operating incomeRequirement 3. Identify long-term factors Deep Sea should consider in deciding whether to accept the special sales order.In addition to determining the special order's effect on operating profits, Deep Sea's managers also should consider the following:O A. How will Deep Sea's competitors react? Will they retaliate by cutting their prices and starting a price war?B. Will the special order customer come back again and again, asking for the same reduced price?OC. Will Deep Sea's other customers find out about the lower sale price Deep Sea accepted from Optimum? If so, will these other customers demand lower sale prices?OD. All of the aboveO E. None of the aboveData tableDeep SeaIncome StatementFor the Month Ended August 31, 2024Sales in Units$29,000580,000Net Sales RevenueVariable Costs:ManufacturingSelling and AdministrativeTotal Variable CostsContribution MarginFixed Costs:ManufacturingSelling and AdministrativeTotal Fixed CostsOperating Income116,000103,000219,000361,000122,00088,000210,000S151,000PrintDone- X

What are various types of cost?Variable CostThose cost which very in same proportion as to producing…

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Requirement 1. Identify each cost in the income statement as either relevant or irrelevant to Deep Sea's decision.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Concept explainers

Manufacturing Costs

Manufacturing cost is the total cost of procuring or producing a product. In other words, the manufacturing cost is the cost that an individual or business owner undertakes for the manufacturing of goods.

Question

Deep Sea manufactures flotation vests in Charleston, South Carolina. Deep Sea's contribution margin income statement for the month ended August 31, 2024, contains
the following data:
(Click the icon to view the cost information.)
Read the requirements.
Suppose Optimum wishes to buy 4,800 vests from Deep Sea. Deep Sea will not incur any variable selling and administrative expenses on the special order. The
Deep Sea plant has enough unused capacity to manufacture the additional vests. Optimum has offered $16 per vest, which is below the normal sales price of $20.
Requirement 1. Identify each cost in the income statement as either relevant or irrelevant to Deep Sea's decision.
Variable Manufacturing Costs
Variable Selling and Administrative Costs
Fixed Manufacturing Costs
Fixed Selling and Administrative Costs
Requirement 2. Prepare a differential analysis to determine whether Deep Sea should accept this special sales order. (Enter decreases to revenue or increases to costs with a parentheses or minus sign.)
Decision:
in operating income
Requirement 3. Identify long-term factors Deep Sea should consider in deciding whether to accept the special sales order.
In addition to determining the special order's effect on operating profits, Deep Sea's managers also should consider the following:
O A. How will Deep Sea's competitors react? Will they retaliate by cutting their prices and starting a price war?
B. Will the special order customer come back again and again, asking for the same reduced price?
OC. Will Deep Sea's other customers find out about the lower sale price Deep Sea accepted from Optimum? If so, will these other customers demand lower sale prices?
OD. All of the above
O E. None of the above
Data table
Deep Sea
Income Statement
For the Month Ended August 31, 2024
Sales in Units
$
29,000
580,000
Net Sales Revenue
Variable Costs:
Manufacturing
Selling and Administrative
Total Variable Costs
Contribution Margin
Fixed Costs:
Manufacturing
Selling and Administrative
Total Fixed Costs
Operating Income
116,000
103,000
219,000
361,000
122,000
88,000
210,000
S
151,000
Print
Done
- X

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