Question 1 Sea Island Company is trying to decide which one of two alternatives

Question

Question 1

Sea Island Company is trying to decide which one of two alternatives it will accept. The costs and revenues associated with each alternative are listed below:
  

  
What is the differential revenue for this decision?

Question 2

The Clear Music Company produces and sells a desktop speaker for $140. The company has the capacity to produce 54,000 speakers each period. At capacity, the costs assigned to each unit are as follows:

  
The company has received a special order for 5,000 speakers. If this order is accepted, the company will have to spend $14,000 on additional costs. Assuming that no sales to regular customers will be lost if the order is accepted, at what selling price will the company be indifferent between accepting and rejecting the special order? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Thank you!!

Alternative A Alternative B   Projected revenue $220,000 $320,000   Unit-level costs 42,000 53,000   Batch-level costs 29,500 41,000   Product-level costs 32,000 34,000   Facility-level costs 27,000 29,500

Explanation / Answer

USD$ Ans 1 Alternative A Alternative B Projected Revenue 220000 320000 Less: Unit Level Cost 42000 53000 Less:Batch Level Cost 29500 41000 Less: Product Level Cost 32000 34000 Total diffrential cost Cost 103500 128000 Diffrential Revenue 116500 192000 Note: facility level in not relevant because it is fixed expenses Alternative B should be accepted Ans B Unit Level 65 Product Level 19 Facility Level 9 For special order unit level cost and batch level cost is relevant.Product and facility level will remain unchanged Special Order 5000 The incremental cost divided by no. of units will give us the minimum rate which is $67.8 at which company will be indifferent in accepting or rejecting Unit Level Cost (65*5000) 325000 Additional Cost 14000 Total 339000 Price per unit $67.8

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