Identifying relevant information and making pricing decisionsNautical manufactures flotation vests in Tampa, Florida. Nautical’s contribution margin income statement for the month ended December 31, 2018, contains the following data:Suppose Water Works wishes to buy 4,800 vests from Nautical. Nautical will not incur any variable selling and administrative expenses on the special order. The Nautical plant has enough unused capacity to manufacture the additional vests. Water Works has offered $15 per vest, which is below the normal sales price of $19.RequirementsIdentify each cost in the income statement as either relevant or irrelevant to Nautical’s decision.Prepare a differential analysis to determine whether Nautical should accept this special sales order.Identity long—term factors Nautical should consider in deciding whether to accept the special sales order. NAUTICALIncome StatementFor the Month Ended December 31, 2018Sales in Units29,000Net Sales Revenue$ 551,000Variable Costs:Manufacturing116,000Selling and Administrative111,000Total Variable Costs227,000Contribution Margin324,000Fixed Costs:Manufacturing123,000Selling and Administrative92,000Total Fixed Expenses215,000Operating IncomeS 109,000

Requirement 1: For the company to produce 4,800 units, they would have to incur a variable…

Answered: NAUTICAL Income Statement For the Month…

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Identifying relevant information and making pricing decisions

Nautical manufactures flotation vests in Tampa, Florida. Nautical’s contribution margin income statement for the month ended December 31, 2018, contains the following data:

Suppose Water Works wishes to buy 4,800 vests from Nautical. Nautical will not incur any variable selling and administrative expenses on the special order. The Nautical plant has enough unused capacity to manufacture the additional vests. Water Works has offered $15 per vest, which is below the normal sales price of $19.

Requirements

Identify each cost in the income statement as either relevant or irrelevant to Nautical’s decision.
Prepare a differential analysis to determine whether Nautical should accept this special sales order.
Identity long—term factors Nautical should consider in deciding whether to accept the special sales order.

NAUTICAL
Income Statement
For the Month Ended December 31, 2018
Sales in Units
29,000
Net Sales Revenue
$ 551,000
Variable Costs:
Manufacturing
116,000
Selling and Administrative
111,000
Total Variable Costs
227,000
Contribution Margin
324,000
Fixed Costs:
Manufacturing
123,000
Selling and Administrative
92,000
Total Fixed Expenses
215,000
Operating Income
S 109,000

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