Question
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. Miramars accounting system indicates that the total cost per tire is as follows:
| Direct materials | $36 |
| Direct labor | 13 |
| 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.
Question Content Area
a. Prepare a differential analysis report for the proposed sale to Rio Motors. Round your answers to the nearest cent.
| Per Unit | Total | |
| 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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