Exercises & problems - chapter 25(thirdpart)

**Jackson Lumber Company incurs a cost of $388 per hundred board feet (hbf) in processing certain "rough-cut" lumber, which it sells for $568 per hbf. An alternative is to produce a "finished cut" at a total processing cost of $520 per hbf, which can be sold for $780 per hbf.

Prepare a differential analysis dated August 9 on whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2). For those boxes in which you must enter subtracted or negative numbers use a minus sign.

***Brightstone Tire and Rubber Company has capacity to produce 230,000 tires. Brightstone presently produces and sells 176,000 tires for the North American market at a price of $88 per tire. Brightstone is evaluating a special order from a European automobile company, Euro Motors. Euro is offering to buy 27,000 tires for $72.8 per tire. Brightstone's accounting system indicates that the total cost per tire is as follows:

Direct materials	$33
Direct labor	12
Factory overhead (60% variable)	20
Selling and administrative expenses (40% variable)	18
Total	$83

Brightstone 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 $5 per tire. In addition, Euro has made the order conditional on receiving European safety certification. Brightstone estimates that this certification would cost $126,900.

a. Prepare a differential analysis dated January 21 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.

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

Differential Analysis Sell Rough-Cut (Alt. 1) or Process Further into Finished Cut (Alt. 2) August 9 Sell Process Differential Rough-Cut Further into Effect Finished Cut (Alternative 1) on Income (Alternative 2) (Alternative 2) Revenues, per 100 board ft. Costs, per 100 board ft. $ Income (Loss), per 100 board ft. $ $ Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) January 21 Reject Accept Differential Order Order Effect (Alternative 1) (Alternative 2) on Income (Alternative 2) Revenues Costs: Direct materials Direct labor Variable factory overhead Variable selling and admin. expenses Shipping costs Certification costs Income (Loss)