(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]

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

Suppose Overton wishes to buy 4,500 vests from Maritime. Acceptance of the order will not increase Maritime’s variable marketing and administrative expenses. The Maritime plant has enough unused capacity to manufacture the additional vests. Overton has offered $11.00 per vest, which is below the normal sale price of $16.

Requirements

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

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

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