Question 2: Deep Blue manufactures floatation vests in Charleston, South Carolina. Deep Blue's contribution margin income statement for the most recent month contains the following data:
Sales in units 31,000
Sales in revenue $434,000
Variable expenses:
Manufacturing $186,000
Marketing and administrative 110,000
Total variable expenses 296,000
Contribution margin 138,000
Fixed expenses:
Manufacturing 130,000
Marketing and administrative 92,000
Total fixed expenses 222,000
Operating income (loss) $(84,000)
Suppose Boats-n- More wishes to buy 4,600 vests from Deep Blue. Acceptance of the order will not increase Deep Blue's variable marketing and administrative expenses. The Deep Blue plant has enough unused capacity to manufacture the additional vests. Boats-n-More has offered $8 per vest, which is below the normal sale price of $14.
Required:
a) Determine whether Deep Blue should accept this special sales order.
b) Identify long-term factors Deep Blue should consider in deciding whether to accept the special sales order.