Reference no: EM1317023

Question 2: Deep Blue manufactures floatation vests in Charleston, South Carolina.  Deep Blue's contribution margin income statement for the most recent month contains the following data:

 

                        Sales in units                                                                               31,000

                        Sales in revenue                                                                      $434,000

                        Variable expenses:                                                                 

                        Manufacturing                                                                                    $186,000

                        Marketing and administrative                                                   110,000

Total variable expenses                                                             296,000

Contribution margin                                                                  138,000        

Fixed expenses:

Manufacturing                                                                          130,000

Marketing and administrative                                                     92,000

Total fixed expenses                                                                 222,000

Operating income (loss)                                                          $(84,000)                    

 

Suppose Boats-n- More wishes to buy 4,600 vests from Deep Blue.  Acceptance of the order will not increase Deep Blue's variable marketing and administrative expenses.  The Deep Blue plant has enough unused capacity to manufacture the additional vests.  Boats-n-More has offered $8 per vest, which is below the normal sale price of $14.

Required:

a)      Determine whether Deep Blue should accept this special sales order.

b)      Identify long-term factors Deep Blue should consider in deciding whether to accept the special sales order.