Instructions:

Talladega Tire and Rubber Company has capacity to produce 184,000 tires. Talladega presently produces and sells 130,500 tires for the North American market at a price of $178 per tire. Talladega is evaluating a special order from a European automobile company, Autobahn Motors. Autobahn is offering to buy 23,900 tires for $115.76 per tire. Talladegas accounting system indicates that the total cost per tire is as follows:

Direct materials	$55
Direct labor	21
Factory overhead (56% variable)	27
Selling and administrative expenses (41% variable)	28
Total	$131

Talladega pays a selling 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 $7.96 per tire. In addition, Autobahn has made the order conditional on receiving European safety certification. Talladega estimates that this certification would cost $193,590.

Differential Analysis

Reject (Alternative 1) or Accept (Alternative 2) Order

July 31

1		Reject Order	Accept Order	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
3
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6
7
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9
10
11

Final Question:

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

Accept

The company is indifferent since the result is the same regardless of which alternative is chosen.

Reject

c. What is the minimum price per unit that would be financially acceptable to Talladega? Round your answer to two decimal places.