50.1K

Verified Solution

Link Copied!

Decision on Accepting Additional Business

Talladega Tire and Rubber Company has capacity to produce 500,000 tires. Talladega presently produces and sells 400,000 tires for the North American market at a price of $200 per tire. Talladega is evaluating a special order from a European automobile company, Autobahn Motors. Autobahn is offering to buy 100,000 tires for $150 per tire. Talladega's accounting system indicates that the total cost per tire is as follows:

Direct materials	$75
Direct labor	20
Factory overhead (70% variable)	30
Selling and administrative expenses (60% variable)	18
Total	$143

Talladega pays a selling commission equal to 3% of the selling price on North American orders, which is included in the variable portion of the selling and administrative expenses. However, this special order would not have a sales commission. If the order was accepted, the tires would be shipped overseas for an additional shipping cost of $3 per tire. In addition, Autobahn has made the order conditional on receiving European safety certification. Talladega estimates that this certification would cost $400,000.

Talledega Tire and Rubber Company has capacity to produce 500,000 tires. Talledega presently produces and sells 100,000 tires for the North American market et a price of $200 per tire. Talledega s evaluating a special order from a European automobile company, Autobahn Motors. Autobahn is offering to buy 100,000 tires for $150 per tire. Tafiladega's accounting system indicates that the total cost per tire is as follows: $75 Direct materiais Direct labor 20 30 Factory overhead (70% variable) Selling and administrative expenses (60% variable) 18 Total $143 Talladega pays a selling commission equal to 3% of the selling price on North American orders, which is included in the variable portion of the selling and administrative expenses. However, this special order would not have a sales commission. If the order was accepted, the tires wauld be shipped overseas for an additional shipping cost of $3 ger dire. In addition, Autobahn has made the order conditional on receiving European safety certification. Talladega estimates that this certification would cost $400,000. a. Prepare a differential analysis dated July 31 on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors, If an amount is zero, enter'a'. If required, round interim calculations to two decimal places. Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) July 31 Reject Accept Differential Order Order Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Coats: lo Direct materials Direct laber Variable factory overhead Variable selling and admin. expenses Shipping costs Certification costs bol. lllllll julli Profit (Loss) Determine whether to reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors. b. What is the minimum price per unit that would be financially acceptable to Talladega? Round your answer to two decimal places. per unit

Answer & Explanation Solved by verified expert

See Answer