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E12-14 Decision on accepting additional business Miramar Tire and Rubber Company has capacity to produce 250,000 tires. Miramar pres- ently produces and sells 200,000 tires
E12-14 Decision on accepting additional business Miramar Tire and Rubber Company has capacity to produce 250,000 tires. Miramar pres- ently produces and sells 200,000 tires for the North American market at a price of $40 per tire. Miramar is evaluating a special order from a South American automobile company, Rio Motors. Rio Motors is offering to buy 40,000 tires for $20 per tire. Miramar's accounting system indicates that the total cost per tire is as follows: Total Direct materials $10.00 Direct labor 5.00 Factory overhead (45% variable) 4.00 Selling and administrative expenses (75% variable) 3.00 $22.00 - Miramar pays a sales commission equal to 4% 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 $1.50 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 $20,000. a. Prepare a differential analysis report for the proposed sale to Rio Motors. b. What is the minimum price per unit that would be financially acceptable to Miramar
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