(L.OBJ. 1, 2) Identifying which information is relevant and making special order and pri...

(L.OBJ. 1, 2) Identifying which information is relevant and making special order and pricing decisions [15—20 min]

Buoy manufactures flotation vests in Tampa, Florida. Buoy’s contribution-margin income statement for the month ended January 31, 2010, contains the following data:

Suppose Overton wishes to buy 5,300 vests from Buoy. Acceptance of the order will not increase Buoy’s variable marketing and administrative expenses. The Buoy plant has enough unused capacity to manufacture the additional vests. Overton has offered $9.00 per vest, which is below the normal sale price of $14.

Requirements

1. Identify cadi cost in the income statement as either relevant or irrelevant to Buoy’s decision.

2. Prepare an incremental analysis to determine whether Buoy should accept this special sales order.

3. Identify long-term factors Buoy should consider in deciding whether to accept the special sales order.