Accounting Principles II Garret Garcla &1 4/9/18 3:04 PM Homework: Chapter 25 Ho

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Accounting Principles II Garret Garcla &1 4/9/18 3:04 PM Homework: Chapter 25 Homework Score: 0 of 1 pt P25-21A (similar to) Save 41 of 3 (0 complete) HW Score: 0%, 0 of 3 pts Question Help Aqua Fun manufactures flotation vests in Charleston, South Carolina. Aqua Fun's Suppose Overboard wishes to buy 4,500 vests from Aqua Fun. Aqua Fun will not contibution margin income statement for the month ended January 31, 2018,incur any variable selling and administrative expenses on the special order. The contains the following data EEEClick the icon to view the cost information. Aqua Fun plant has enough unused capacity to manufacture the additional vests Overboard has offered $11 per vest, which is below the normal sales price of $17 Read the tesuirements Requirement 1. Identity each cost in the income statement as either relevant or irrelevant to Aqua Fun's decision. Variable Manufacturing Costs Variable Selling and Administrative Costs Fixed Manufacturing Costs Fixed Selling and Administrative Costs Click to select your answer(s) and then click Check Answer. Clear All emaining

Explanation / Answer

Variable Manufacturing Costs- Relevant

Variable Selling and Administrative costs- Relevant for Aqua’s decision but it is zero.

Fixed Manufacturing Costs- Irrelevant for Aqua’s decision

Fixed Selling and Administrative Costs- Irrelevant for Aqua’s decision

Aqua Fun has got a special order where Overboard wishes to buy 4500 vests. To evaluate this order, Aqua Fun will have to use the concept of relevant cost to understand whether the order should be accepted at $11 per vest or not even $11 is below the current Sales Price of $17 per unit.

Let us analyze the cost items for vests and see if they are relevant to the order:

Since Aqua Company has enough unused capacity, it should accept the order at $11 per unit. Relevant cost for this order is only $4 per unit.

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