6. 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: Cost Driver Dollar Amount per Tire Direct materials $75 Direct labor 20 Factory overhead (70% variable) 30 Selling and admin expenses (60% variable) 18 Total 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. b. What is the minimum price per unit that would be financially acceptable to Talladega?
6. 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: Cost Driver Dollar Amount per Tire Direct materials $75 Direct labor 20 Factory overhead (70% variable) 30 Selling and admin expenses (60% variable) 18 Total 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. b. What is the minimum price per unit that would be financially acceptable to Talladega?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:6. 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:
Cost Driver
Dollar Amount per Tire
Direct materials
$75
Direct labor
20
Factory overhead (70% variable)
30
Selling and admin expenses (60% variable)
18
Total
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.
b. What is the minimum price per unit that would be
financially acceptable to Talladega?
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