Decision on Accepting Additional Business
Talladega Tire and Rubber Company has capacity to produce 221,000 tires. Talladega presently produces and sells 169,000 tires for the North American market at a price of $114 per tire. Talladega is evaluating a special order from a European automobile company, Autobahn Motors. Autobahn is offering to buy 26,000 tires for $92.8 per tire. Talladega’s accounting system indicates that the total cost per tire is as follows:
|Factory overhead (70% variable)||26|
|Selling and administrative expenses (30% variable)||23|
Talladega 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 per tire. In addition, Autobahn has made the order conditional on receiving European safety certification. Talladega estimates that this certification would cost $156,000.
a. Prepare a differential analysis dated July 31 on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors. If an amount is zero, enter “0”. If required, round interim calculations to two decimal places.
|Reject Order (Alt. 1) or Accept Order (Alt. 2)|
|Reject Order (Alternative 1)||Accept Order (Alternative 2)||Differential Effect on Income (Alternative 2)|
|Variable factory overhead|
|Variable selling and admin. expenses|
a. Subtract the additional costs (each unit cost multiplied by 26,000 tires) from the additional revenue ($92.8 per tire multiplied by the number of tires in the offer). The variable selling and administrative expenses are 30% of $23 per tire, less 5% of $114 sales commission per unit.
Learning Objective 1.
Determine whether to reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors.
Accept the special order
b. What is the minimum price per unit that would be financially acceptable to Talladega? Round your answer to two decimal places.
$per unit. Get Accounting homework help today
Our customer is the center of what we do and thus we offer 100% original essays..
By ordering our essays, you are guaranteed the best quality through our qualified experts.All your information and everything that you do on our website is kept completely confidential.
Academicwritingcompany.com always strives to give you the best of its services. As a custom essay writing service, we are 100% sure of our services. That is why we ensure that our guarantee of money-back stands, alwaysRead more
The paper that you order at academicwritingcompany.com is 100% original. We ensure that regardless of the position you are, be it with urgent deadlines or hard essays, we give you a paper that is free of plagiarism. We even check our orders with the most advanced anti-plagiarism software in the industry.Read more
The Academicwritingcompany.com thrives on excellence and thus we help ensure the Customer’s total satisfaction with the completed Order.To do so, we provide a Free Revision policy as a courtesy service. To receive free revision the Academic writing Company requires that the you provide the request within Fifteen (14) days since the completion date and within a period of thirty (30) days for dissertations and research papers.Read more
With Academicwritingcompan.com, your privacy is the most important aspect. First, the academic writing company will never resell your personal information, which include credit cards, to any third party. Not even your lecturer on institution will know that you bought an essay from our academic writing company.Read more
The academic writing company writers know that following essay instructions is the most important part of academic writing. The expert writers will, therefore, work extra hard to ensure that they cooperate with all the requirements without fail. We also count on you to help us provide a better academic paper.Read more