Decision on Accepting Additional Business

Miramar Tire and Rubber Company has capacity to produce 153,000 tires. Miramar presently produces and sells 117,000 tires for the North American market at a price of $91.00 per tire. Miramar is evaluating a special order from a South American automobile company, Rio Motors. Rio Motors is offering to buy 18,000 tires for $74.65 per tire. Miramars accounting system indicates that the total cost per tire is as follows:

Direct materials	$35
Direct labor	13
Factory overhead (60% variable)	21
Selling and administrative expenses (30% variable)	18
Total	$87

Miramar pays a sales 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 $5.00 per tire. In addition, Rio has made the order conditional on Miramar Tire and Rubber Company receiving a Brazilian safety certification. Rio estimates that this certification would cost Miramar Tire $86,400.

a. Prepare a differential analysis report for the proposed sale to Rio Motors. Round your answers to the nearest cent Miramar Tire And Rubber Company Sell to Rio Motors Differential Analysis Report Per Unit Total Differential revenue from accepting special offer 74.65 1,343,700 V Differential costs from accepting special offer: (Enter per unit cost amounts as positive values; enter the per unit cost savings as a negative value) Direct materials Direct labor Variable factory overhead Variable selling and administrative Less avoided sales commission 35 13 12.6 0.05 X 90.0001 x Additional shipping costs Variable special offer product cost Incremental certification costs 86,400 Total differential costs Differential income from accepting special order