Identifying which information is relevant, and making special order and pricing decisions Buoy manufactures flotation vests in Charleston, South Carolina. Buoy’s contribution margin income statement for the month ended December 31, 2012, contains the following data:

BUOY Income Statement For the Month Ended December 31, 2012
Sales in units	32,000
Sales revenue	$544,000
Variable expenses:	Â
Manufacturing	96,000
Marketing and administrative	110,000
Total variable expenses	$206000
Contribution margin	$ 338,000
Fixed expenses:	Â
Manufacturing	127,000
Marketing and administrative	95,000
Total fixed expenses	$ 222,000
Operating income	$ 116,000

Suppose Overboard wishes to buy 3,900 vests from Buoy. Acceptance of the order will not increase Buoy’s variable marketing and administrative expenses. The Buoy plant has enough unused capacity to manufacture the additional vests. Overboard has offered $8.00 per vest, which is below the normal sale price of $17.

Requirements

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

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

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

View less »