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Decision on Accepting Additional Business Talladega Tire and Rubber Company has capacity to produce 128,000 tires. Talladega presently produces and sells 98,000 tires for the North American market at a price of $97 per tire. Talladega is evaluating a special order from a European automobile company, Autobahn Motors. Autobahn is offering to buy 15,000 tires for $81.15 per tire. Talladega's accounting system indicates that the total cost per tire is as follows: Direct materials $37 Direct labor 14 Factory overhead (70% variable) 22 Selling and administrative expenses (30% variable) 19 Total $92 Talladega 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, Autobahn has made the order conditional on receiving European safety certification. Talladega estimates that this certification would cost $76,500. 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 "0". If required, round interim calculations to two decimal places. Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) July 31 Reject Order Accept Order Differential Effect on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues 0 $ 1,217,250 $ 1,217,250 Costs: Direct materials o -555,000 -555,000 Direct labor 0 -210,000 -210,000 0 -231,000 -231,000 Variable factory overhead Variable selling and admin. 0 - 12,750 -12,750 avnanca Variable selling and admin. expenses 0 -12,750 -12,750 Shipping costs 0 -90,000 x -90,000 X Certification costs 0 -76,500 -76,500 Income (Loss) 0 42,000 X 42,000 Feedback Check My Work a. Subtract the additional costs (each unit cost multiplied by 15,000 tires) from the additional revenue ($81.15 per tire multiplied by the number of tires in the offer). The variable selling and administrative expenses are 30% of $19 per tire, less 5% of $97 sales commission per unit. Learning Objective 1. 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. $ 78.35 X per unit Feedback Check My Work b. What is the minimum price per unit on the special order? Learning Objective 1
