Aqua Fun manufactures flotation vests in Atlanta, Georgia. Aqua Fun\'s contribut

Question

Aqua Fun manufactures flotation vests in Atlanta, Georgia. Aqua Fun's contribution margin income statement for the most recent month contains the following data: ?(Click the icon to view the cost information.) Suppose Overlook Cruiselines wants to buy 4,500 vests from Aqua Fun. Acceptance of the order will not increase Aqua Fun's variable marketing and administrative expenses or any of its fixed expenses. The Aqua Fun plant has enough unused capacity to manufacture the additional vests. Overlook Cruiselines has offered $10 per vest, which is below the normal sale price of $15. Read the requirements Requirement 1. Prepare an incremental analysis to determine whether Aqua Fun should accept this special sales order. (Enter a "O" for any zero balances. Use parentheses or a minus sign to indicate a negative contribution margin and/or a decrease in operating income from the special order.) Total Order Incremental Analysis of Special Sales Order Decision Per Unit 4,500 units) Revenue from special order Less variable expense associated with the order Variable manufacturing costs Contribution margin Less: Additional fixed expenses associated with the order Increase (decrease) in operating income from the special order Decision: Requirement 2. Identify long-term factors Aqua Fun should consider in deciding whether to accept the special sales order. In addition to determining the special order's effect on operating profits, Aqua Fun's managers also should consider the following: O A. Will lowering the sale price tarnish Aqua Fun's image as a quality brand? O B. Will Aqua Fun's other customers find out about the lower sale price Aqua Fun accepted from Overlook? If so, will these other customers demand lower sale prices? o C. How will Aqua Fun's competitors react? Will they retaliate by cutting their prices and starting a price war? D. All of the above. E. None of the above.

Explanation / Answer

Answer - Requirement 1 Incremental analysis to determine whether to accept the special sales order or not Incremental analysis of special order decision Per Unit Total Order (4500 units) Revenue from Special order $10.00 $45,000.00 Less : Variable expenses associated with the order Variable Manufacturing costs $5.00 $22,500.00 Contribution Margin $5.00 $22,500.00 Less : Additional fixed expenses associated with the order $0.00 Increase (decrease) in operating income from the special order $22,500.00 Decision : Accept the order Answer - Requirement 2 The answer is Option D.

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