Safe Sailing manufactures flotation vests in Kirra Beach, Gold Coast. Safe Sailing's contribution margin income statement for the month ended 31 December 2016 contains f E (Click the icon to view the cost information.) Cost information Suppose Overtown wishes to buy 3 800 vests from Safe Sailing. Acceptance of the order won't increase Safe Sailing's variable marketing and administrative expenses. The : vests. Overtown has offered $12.00 per vest, which is below the normal sale price of $20. Requirements Safe Sailing Requirement 1. Identify each cost in the income statement as either relevant or irrelevant to Safe Sailing's decision. Income statement Variable manufacturing expenses for the month ended 31 December 2016 Sales in units Sales revenue Variable expenses: Manufacturing Variable marketing and administrative expenses 41 000 820 000 Fixed manufacturing expenses Fixed marketing and administrative expenses 205 000 Requirement 2. Prepare an incremental analysis to determine whether Safe Sailing should accept this special sales order. (Use a minus sign or brackets for negative amoun Marketing and administrative 105 000 %2$ 310 000 Safe Sailing Total variable expenses Contribution margin Fixed expenses: 510 000 Incremental analysis of special sales order Expected increase in revenue Expected increase in expenses-Variable manufacturing expenses: Manufacturing 126 000 91 000 Marketing and administrative in profit 217 000 Total fixed expenses Decision: %24 293 000 Profit Requirement 3. Identify long-term factors Safe Sailing should consider in deciding whether to accept the special sales order. In addition to determining the special order's effect on operating profits, Safe Sailing's managers also should consider the following:

FINANCIAL ACCOUNTING

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Chapter1: Financial Statements And Business Decisions

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Transcribed Image Text:Safe Sailing manufactures flotation vests in Kirra Beach, Gold Coast. Safe Sailing's contribution margin income statement for the month ended 31 December 2016 contains the following data: E (Click the icon to view the cost information.) Suppose Overtown wishes to buy 3 800 vests from Safe Sailing. Acceptance of the order won't increase Safe Sailing's variable marketing and administrative expenses. The Safe Sailing plant has e vests. Overtown has offered $12.00 per vest, which is below the normal sale price of $20. Cost information Requirements Safe Sa Income st Fixed marketing and administrative expenses for the month ended 3 Requirement 2. Prepare an incremental analysis to determine whether Safe Sailing should accept this special sales order. (Use a minus sign or brackets for negative amounts.) Sales in units Safe Sailing Sales revenue Incremental analysis of special sales order Variable expenses: Expected increase in revenue Manufacturing Expected increase in expenses-Variable manufacturing expenses: Marketing and administrative in profit Total variable expenses Contribution margin Decision: Fixed expenses: Requirement 3. Identify long-term factors Safe Sailing should consider in deciding whether to accept the special sales order. Manufacturing In addition to determining the special order's effect on operating profits, Safe Sailing's managers also should consider the following: Marketing and administrative O A. How will Safe Sailing's competitors react? Will they retaliate by cutting their prices and start a price war? Total fixed expenses O B. Will Safe Sailing's other customers find out about the lower sale price Safe Sailing accepted from Overtown? If so, will these other customers demand lower sale prices? Profit O C. Will lowering the sale price tarnish Safe Sailing's image as a quality brand? O D. All of the above O E. None of the above

Safe Sailing manufactures flotation vests in Kirra Beach, Gold Coast. Safe Sailing's contribution margin income statement for the month ended 31 December 2016 contains
E (Click the icon to view the cost information.)
Suppose Overtown wishes to buy 3 800 vests from Safe Sailing. Acceptance of the order won't increase Safe Sailing's variable marketing and administrative expenses. The
Cost information
vests. Overtown has offered $12.00 per vest, which is below the normal sale price of $20.
Requirements
Safe Sailing
Requirement 1. Identify each cost in the income statement as either relevant or irelevant to Safe Sailing's decision.
Income statement
Variable manufacturing expenses
for the month ended 31 December 2016
Sales in units
Sales revenue
Variable marketing and administrative expenses
41 000
$
820 000
Fixed manufacturing expenses
Variable expenses:
Fixed marketing and administrative expenses
Manufacturing
205 000
105 000
Requirement 2. Prepare an incremental analysis to determine whether Safe Sailing should accept this special sales order. (Use a minus sign or brackets for negative amour
Marketing and administrative
$
310 000
Safe Sailing
Total variable expenses
Incremental analysis of special sales order
Contribution margin
$
510 000
Expected increase in revenue
Fixed expenses:
Expected increase in expenses-Variable manufacturing expenses:
Manufacturing
126 000
91 000
in profit
Marketing and administrative
Total fixed expenses
$
217 000
Decision:
$
293 000
Profit
Requirement 3. Identify long-term factors Safe Sailing should consider in deciding whether to accept the special sales order.
In addition to determining the special order's effect on operating profits, Safe Sailing's managers also should consider the following:
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