assignmentsätak tor-assignment-takeBinprogress-false Show Me How Decision on Acc
ID: 2429565 • Letter: A
Question
assignmentsätak tor-assignment-takeBinprogress-false Show Me How Decision on Accepting Additional Business Brightstone Tire and Rubber Companry has capecity to produce 298,000 tires. Brightstone presently produces and sels 228,000 tires for the North Amerian market at a price of $93 per tire. Brightstone is evaluating a special order from a European automobile company, Furo Motors. Euro is offering to buy 35,00 ires for $79.35 per tire. Brightstone's accounting system indicates that the total cost per tire is as follows: Direct materials Direct labor Factory overhead (70% variable) Selling and administrative expenses (40% variable) 13 Beightstone pays a selia commission equal to 5% of the selig price on North American orders, which is included in the variable portion or the seling and adminitrative expenses. Howewer, this special order would not have a sales commission. I' the order was accepted, the tres wwuld be shioped overcens for an additional shipping cost of $5 per tire. In addition, Euro has made the order cenditional on recelving turopean that this certification would cost $171,500 safety certification. Brightstone estimates Alternative 2) the special order from Euro Motors.? an a. Prepare a differential analysis dated January 21 on whether to reject (Alternative 1) or accept amount is zero, enter zero "o. If required, round interien calculations to two decimal places. Differential Analysis Reject Onder (Alt. 1) or Accept Onder (AR 2 iflect Alternative 1) (At2) on Income (Atemmative 2) Check My Work 2 more Check My Work une remaring All woek saved FS FIO F11 F12 F8 Backspace 8 9 7 y U K L Enter HUExplanation / Answer
Differential Analysis:
Reject Order
Accept Order
Differential Effect on Income
Revenue
21204,000
23981,250
2777,250
Costs:
Direct Material
7980,000
9205,000
(1225,000)
Direct Labor
2964,000
3419,000
(455,000)
Variable Factory Overhead
3351,600
3866,100
(514,500)
Variable Selling and Admin Exp
1732,800
1836,050
(103,250)
Shipping Cost
0
175,000
(175,000)
Certification Cost
0
171,500
(171,500)
Income (Loss)
5175,600
5308,600
133,000
Accept Order
b.Minimum Accpetable Price is when Profit = 0
That is, (2777,250-133,000)/35000 = $75.55
Working Notes:
Variable Factory overheads = 70% of 21 = 14.7 per Unit
Variable Selling and Admin exp = 40% of 19 = 7.6
Commission = 5% of 93 = 4.65
Hence, Relevant Variable Selling Exp for Export order = 7.6-4.65 = 2.95 per tire
Reject Order
Accept Order
Differential Effect on Income
Revenue
21204,000
23981,250
2777,250
Costs:
Direct Material
7980,000
9205,000
(1225,000)
Direct Labor
2964,000
3419,000
(455,000)
Variable Factory Overhead
3351,600
3866,100
(514,500)
Variable Selling and Admin Exp
1732,800
1836,050
(103,250)
Shipping Cost
0
175,000
(175,000)
Certification Cost
0
171,500
(171,500)
Income (Loss)
5175,600
5308,600
133,000
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