Identifying relevant information and making pricing decisionsSea Blue manufactures flotation vests in Charleston, South Carolina. Sea Blue’s contribution margin income statement for the month ended December 31, 2018, contains the following data:Suppose Overboard wishes to buy 4,600 vests from Sea Blue. Sea Blue will not incur any variable Selling and administrative expenses on the special order. The Sea Blue plant has enough unused capacity to manufacture the additional vests. Overboard has offered $15 per vest, which is below the normal sales price of $19.RequirementsIdentify each cost in the income statement as either relevant or irrelevant to Sea Blue’s decision.Prepare a differential analysis to determine whether Sea Blue should accept this special sales order.Identify long-term factors Sea Blue should consider in deciding whether to accept the special sales order. SEA BLUEIncome StatementFor the Month Ended December 31, 2018Sales in UnitsNet Sales Revenue32,000$ 608,000Variable Costs:Manufacturing96,000Selling and Administrative108,000Total Variable Costs204,000Contribution Margin404,000Fixed Costs:ManufacturingSelling and Administrative124,00094,000Total Fixed Costs218,000Operating income$ 186,000

Relevant costs are those costs that affect the decision making of the company. The decision may…

Answered: SEA BLUE Income Statement For the Month…

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Identifying relevant information and making pricing decisions

Sea Blue manufactures flotation vests in Charleston, South Carolina. Sea Blue’s contribution margin income statement for the month ended December 31, 2018, contains the following data:

Suppose Overboard wishes to buy 4,600 vests from Sea Blue. Sea Blue will not incur any variable Selling and administrative expenses on the special order. The Sea Blue plant has enough unused capacity to manufacture the additional vests. Overboard 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 Sea Blue’s decision.
Prepare a differential analysis to determine whether Sea Blue should accept this special sales order.
Identify long-term factors Sea Blue should consider in deciding whether to accept the special sales order.

SEA BLUE
Income Statement
For the Month Ended December 31, 2018
Sales in Units
Net Sales Revenue
32,000
$ 608,000
Variable Costs:
Manufacturing
96,000
Selling and Administrative
108,000
Total Variable Costs
204,000
Contribution Margin
404,000
Fixed Costs:
Manufacturing
Selling and Administrative
124,000
94,000
Total Fixed Costs
218,000
Operating income
$ 186,000

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