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Miramar Tire and Rubber Company has capacity to produce 281,000 tires. Miramar presently produces and sells 215,000 tires for the North American market at a

Miramar Tire and Rubber Company has capacity to produce 281,000 tires. Miramar presently produces and sells 215,000 tires for the North American market at a price of $94.00 per tire. Miramar is evaluating a special order from a South American automobile company, Rio Motors. Rio Motors is offering to buy 33,000 tires for $77.80 per tire. Miramar’s accounting system indicates that the total cost per tire is as follows:

Direct materials$36
Direct labor13
Factory overhead (60% variable)22
Selling and administrative expenses (40% variable)19
Total$90

Miramar pays a sales 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 $5.00 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 $165,000.

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a. Prepare a differential analysis report for the proposed sale to Rio Motors. Round your answers to the nearest cent.

Miramar Tire And Rubber Company
Sell to Rio Motors
Differential Analysis Report

Per UnitTotal
Differential revenue from accepting special offer

Differential costs from accepting special offer:
(Enter per unit cost amounts as positive values; enter the per unit cost savings as a negative value).


Differential revenue from accepting special offerDirect materialsFactory overhead (total)Incremental certification costsSales commissionsDirect materials


Differential revenue from accepting special offerDirect laborFactory overhead (total)Incremental certification costsSales commissionsDirect labor


Fixed factory overheadTotal factory overheadVariable factory overheadVariable factory overhead


Total selling and administrativeFixed selling and administrativeVariable selling and administrativeVariable selling and administrative


Less avoided sales commissionPlus avoided sales commissionLess avoided sales commission


Additional shipping costsReduced shipping costsAdditional shipping costs


Fixed special offer product costVariable special offer product costVariable special offer product cost


Incremental certification costsReduced certification costsIncremental certification costs


Total differential costs

Differential income from accepting special orderDifferential loss from accepting special orderDifferential income from accepting special order

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