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I need help with part B I've tried but I cant seem to get it right Decision on Accepting Additional Business Talladega Tire
I need help with part B I've tried but I cant seem to get it right
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: Direct materials Direct labor Factory overhead (70% variable) Selling and administrative expenses (60% variable) Total $75 20 30 18 $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. 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 "O". If required, round interim calculations to two decimal places. Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) July 31 Reject Order (Alternative 1) Revenues Costs: Direct materials Direct labor Variable factory overhead Variable selling and admin. Shipping costs Certification costs Profit (Loss) Feedback Check My Work expenses Accept Order (Alternative 2) -480,000 -300,000 -400,000 Differential Effects (Alternative 2) -480,000 -300,000 -400,000 a. Subtract the additional costs (each unit cost multiplied by 100,000 tires) from the additional revenue ($150 per tire multiplied by the number of tires in the offer). The variable selling and administrative expenses are 60% of $18 per tire, less 3% of $200 sales commission per unit. Determine whether to reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors. Accept 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. per unit
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