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 179,000 tires. Glide Ride presently produces and sells 137,000 tires for the North American market at a price of S110.00 per tire. Glide Ride is evaluating a special order from a European automobile company, Euro Motors. Euro is offering to buy 21,000 tires for $91.50 per tire. Glide Ride's accounting system indicates that the total cost per tire is as follows: Direct materials Direct labor S42 15 25 Factory overhead (70% variable) Selling and administrative expenses (40% variable) 22 Total Glide Ride pays a selling commission equal to 5% 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 $6.00 per tire. In addition, Euro has made the order conditional on receiving European safety certification. Glide Ride estimates that this certification would cost $121,800 S104 a. Prepare a differential analysis dated May 4, 2014, on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors. If an amount is zero, enter zero "O". If required, round interim calculations to two decimal places. b. What is the minimum price per unit that would be financially acceptable to Glide Ride? Round your answer to two decimal places.

Explanation / Answer

Reject Order Accept Order Differential Effect Revenue 17380000 19301500 1921500 137000+21000*110 (137000+21000)*110 + (21000*91.50) Costs Direct Material 6636000 7518000 882000 158000*42 179000*42 Direct Labour 2370000 2685000 315000 158000*15 179000*15 Factory Overhead 2765000 3132500 367500 Variable per unit 25*0.7=17.5 25*0.7=17.5 Variable Selling & 1390400 1459700 69300 Admin expenses 22*0.4=8.8 22*0.4=8.8 =8.8*158000 =8.8-(110*0.05)*21000+1390400 Shipping Cost 0 126000 126000 Certification Cost 0 121000 121000 Income 4218600 4259300 40700

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