Decision on Accepting Additional Business

Talladega Tire and Rubber Company has capacity to produce 500,000 tires. Talladega presently produces and sells 400,000 tires for the North American market at a price of $200 per tire. Talladega is evaluating a special order from a European automobile company, Autobahn Motors. Autobahn is offering to buy 100,000 tires for $150 per tire. Talladega's accounting system indicates that the total cost per tire is as follows:

Line Item DescriptionAmountDirect materials$75Direct labor20Factory overhead (70% variable)30Selling and administrative expenses (60% variable)18Total$143

Talladega pays a selling commission equal to 3% 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 $3 per tire. In addition, Autobahn has made the order conditional on receiving European safety certification. Talladega estimates that this certification would cost $400,000.

Question Content Area

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.

Line Item DescriptionReject Order (Alternative 1)Accept Order (Alternative 2)Differential Effects (Alternative 2)Revenues$Revenues$Revenues$RevenuesCosts: Direct materialsDirect materialsDirect materialsDirect materialsDirect laborDirect laborDirect laborDirect laborVariable factory overheadVariable factory overheadVariable factory overheadVariable factory overheadVariable selling and admin. expensesVariable selling and admin. expensesVariable selling and admin. expensesVariable selling and admin. expensesShipping costsShipping costsShipping costsShipping costsCertification costsCertification costsCertification costsCertification costsProfit (loss)$Profit (loss)$Profit (loss)$Profit (loss)

Question Content Area

Determine whether to reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors.

Accept the special orderReject 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. fill in the blank 1 of 1$ per unit