Decision on Accepting Additional Business

Goodman Tire and Rubber Company has capacity to produce 170,000 tires. Goodman presently produces and sells 130,000 tires for the North American market at a price of $125 per tire. Goodman is evaluating a special order from a European automobile company, Euro Motors. Euro is offering to buy 20,000 tires for $92 per tire. Goodman's accounting system indicates that the total cost per tire is as follows:

Goodman 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 $6.50 per tire. In addition, Euro has made the order conditional on receiving European safety certification. Goodman estimates that this certification would cost $142,000.

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Hint(s)

a. Prepare adifferential analysisdated January 21, 2014, on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors. If an amount is zero, enter zero "0". If required, round interim calculations to two decimal places.

Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
January 21, 2014
Reject Order (Alternative 1)	Accept Order (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$	$	$
Costs:
Direct materials
Direct labor
Variable factory overhead
Variable selling and admin. expenses
Shipping costs
Certification costs
Income (Loss)	$	$	$

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a. FollowExample Exercise 24-6. Subtract the additional costs (each unit cost multiplied by 20,000 tires) from the additional revenue ($92 multiplied by the number of tires in the offer). The variable selling and administrative expenses are 45% of $20, less 5% of $125 sales commission per unit.

Learning Objective 1.

Determine whether to reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors. SelectAccept the special orderReject the special orderCorrect 1 of Item 2

b. What is the minimum price per unit that would be financially acceptable to Goodman? Round your answer to two decimal places. $per unit

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b. What is the variable cost per unit on the special order?

Learning Objective 1.