Coastal Safety manufactures flotation vests in Miami, Florida. Coastal Safety's contribution margin income statement for the most recent month contains the following data:
Coastal Safety
Contribution Margin Income Statement (Variable Costing)
For Sales Volume of 32,000 Units
Per unit
Sales revenue $480,000
Less variable expenses:
Variable manufacturing costs (DM, DL VariableMOH) 160,000
Variable operating expenses (selling and administrative) 112.000
Contribution margin $208,000
Less fixed expenses:
Fixed manufacturing overhead $126,000
Fixed operating expenses (selling and administrative) 91000
Operating income (loss) $9,000
Suppose Dazzle Cruiselines wants to buy 4,600 vests from Coastal Safety. Acceptance of the order will not require any variable selling and administrative expenses. The special order will not affect fixed expenses. The Coastal Safety plant has enough unused capacity to manufacture the additional vests. Dazzle Cruiselines has offered $7 per vest, which is below the normal sale price of $15.
Requirements:
1. Prepare an incremental analysis to determine whether Coastal Safety should accept this special sales order.
2. Identify long-term factors that Coastal Safety should consider in deciding whether to accept the special sales order.