How do I solve this and plug it in tormal production during May or increase the
ID: 2393637 • Letter: H
Question
How do I solve this and plug it in
tormal production during May or increase the expenses. What is the unit cost below which Forever Ready Company should not go in bidding on the government c EX 9-15 Decision on accepting additional business Glide Ride Tire and Rubber Company has capacity to produce 170 170,000 tires. Glide Ride 00 presently produces and sells 1 30,000 tires for the North American market at a price of $90 per tire. Glide Ride is evaluati Euro Motors. Euro is offering to buy 20,000 tires for system indicates that the total cost per tire is as follows: ng a special order from a European automobile company, $72 per tire. Glide Ride's accounting $34 Direct materials Direct labor Factory overhead (60% variable) Soll-g and dmin!: trative expenses (35% variable) Toial 20 18 $84 of the selling price on North Ameri- can orders, which is included in the variable portion of the selling and administrative Glide Ride pays a selling commission equal to 5%Explanation / Answer
Reject Offer (Alternative 1)
Accept Offer (Alternative 2)
Differential Effect on Income (Alternative 2)
Revenues
$ 11,700,000.00
$ 13,140,000.00
$ 1,440,000.00
Costs
Direct Materials
$ 4,420,000.00
$ 5,100,000.00
$ 680,000.00
Direct Labor
$ 1,560,000.00
$ 1,800,000.00
$ 240,000.00
Variable Factory Overheads ( 12 per Unit)
$ 1,560,000.00
$ 1,800,000.00
$ 240,000.00
Variable selling and Administrative Overheads(6.3* per Unit)
$ 819,000.00
$ 855,000.00
$ 36,000.00
Shipping Cost
$ 100,000.00
$ 100,000.00
Certification Costs
$ 95,000.00
$ 95,000.00
Income (Loss)
$ 3,341,000.00
$ 3,390,000.00
$ 49,000.00
Note* Variable selling expenses for 20000 units will be only 1.8 per Unit (6.3-4.5) Commission will not be paid on 20000 units of order.
Glide Ride Should Accept the Special Order from Euro Motors.
b.
Minimum Price per Unit
Total Differential Cost
=
$ 1,391,000.00
=
$ 69.55
Number of Units
20000
Reject Offer (Alternative 1)
Accept Offer (Alternative 2)
Differential Effect on Income (Alternative 2)
Revenues
$ 11,700,000.00
$ 13,140,000.00
$ 1,440,000.00
Costs
Direct Materials
$ 4,420,000.00
$ 5,100,000.00
$ 680,000.00
Direct Labor
$ 1,560,000.00
$ 1,800,000.00
$ 240,000.00
Variable Factory Overheads ( 12 per Unit)
$ 1,560,000.00
$ 1,800,000.00
$ 240,000.00
Variable selling and Administrative Overheads(6.3* per Unit)
$ 819,000.00
$ 855,000.00
$ 36,000.00
Shipping Cost
$ 100,000.00
$ 100,000.00
Certification Costs
$ 95,000.00
$ 95,000.00
Income (Loss)
$ 3,341,000.00
$ 3,390,000.00
$ 49,000.00
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