Decision on Accepting Additional Business Glide Ride Tire and Rubber Company has

Question

Decision on Accepting Additional Business Glide Ride Tire and Rubber Company has capacity to produce 255,000 tires. Gide Ride presently produces and sells 195,000 tires for the North Arnerican market at a price of $108.00 per tire. Glide Ride is evaluating a special order from a European automobile companty, Euro Motors. Euro is offering to buy 30,000 tires for 89.90 per tire. Glide Ride's accounting system indicates that the total cost per tire is as follows: Direct materials Direct labor Factory overhead (70% variable) 25 Selling and administrative expenses 22 $41 15 (30% variable) Total $103 Glide Ride pays selling commission equal to S% 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. the tres would be shipped overseas for an additional shipping cost of $6.00 per ? e. In addition, Euro has made the order conditional on receiving European safety certification, G1de Ride estimates that this certification would cost $171,000. the order was accepted Hide a. Prepare a differential analysis report for the proposed sale to Euro Motors. Glide Ride Tire and Rubber Company Proposal to Sell to Euro Motors Per Unit Total Differential revenue from accepting special offer Differential costs from accepting special offer r per unit cost amounts as positive values enter the per unit cost savings as a negative value) Direct materals Direct labor Variable seluing a Less avoided seles Additional sh special o Incremental cortif Total differential costs Difterential incom

Explanation / Answer

Minimum Price per unit accepatable to Glide Ride:

Per Unit Total Differential Revenue from accepting the Order             89.90          26,97,000 Differential Cost from accepting the order: Direct Material             41.00 Direct Labour             15.00 Variable Factory Overhead             17.50 Variable Selling & Admin Expense                1.20 Additonal Shipping Cost                6.00             80.70          24,21,000 Incremental Certification            1,71,000 Total Differential cost          25,92,000 Differential Income            1,05,000

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