A 1 Problem 5: Accepting Special Order 2 B C D E and sells 400,000 tires for the North American market at a price of $200 per tire. 3 Talladega and Rubber Company has capacity to produce 500,000 tires. Talladega presently produces 4 5 Talladega is evaluating a special order from an European automobile company, Autobahn Motors of 6 100,000 tires at a selling price of $150 per tire. 7 8 The special offer from Autobahn is purchasing: 9 The special price offered by Autobahn is: 10 100,000 tires $150 per tire 11 Telladega's accounting system indicates the total cost per tire as follows: 12 Direct materials 13 Direct labor 14 Factory overhead (70% si variable) 15 Selling and administrative expenses (60% variabl 16 Total unit costs 17 $75 20 30 18 $143 18 Talladega pays a selling commission equal to 3% of the selling price on the North American orders, 19 which is included in the variable portion of the selling and admin expenses. 20 However, this special order would not have a sales commission. If the order was accepted, the tires 21 would be shipped overseas for an additional shipping costs of $3 per tire. 22 In addition, Autobahn has made the order conditiona on receiving European safety certification 23 Talladega estimates that this certification would costs $400,000. 24 25 Required: 26 A. Prepare a differential analysis dated July 31 on whether to reject (Alternative 1) or Accept (Alternative 2) the specia 27 B. What is the minimum price per unit that would be financial acceptable to Talladega? 28 29 Solution: 30 A 31 32 33 34 35 Differential Analysis Reject (Alt. 1) or Accept (Alt. 2) Order July 31 Reject Order Accept Order Differential effect of Alt. 2 on income (Alternative 1 (Alternative 2 (Alt. 2. Alt. 1) $ $ $ 36 Revenues 37 Costs: 38 Direct materials 39 Direct labor 40 Variable factory overhead 41 Variable selling and admin. Expenses 42 Shipping costs 43 Certification costs 44 Income (loss) 45 46 B: The minimum price should be the price at which differential income is zero or the the revenue equals costs. Problem1 Problem2 Ready Accessibility: Investigate Problem3 Problem4 Problem5