## Special Order: High-Low Cost Estimation SafeRide, Inc. produces air bag systems that it sells to North American automobile manufacturers. Although the company has a capacity of 300,000 units per year, it is currently producing at an annual rate of 180,000 units. SafeRide, Inc. has received an order from a German manufacturer to purchase 60,000 units at $9.00 each. Budgeted costs for 180,000 and 240,000 units are as follows: ### Budgeted Costs: | Manufacturing Costs | 180,000 Units | 240,000 Units | |-----------------------------|---------------|----------------| | Direct materials | $ 450,000 | $ 600,000 | | Direct labor | 315,000 | 420,000 | | Factory overhead | 1,215,000 | 1,260,000 | | Total | 1,980,000 | 2,280,000 | | Selling and administrative | 765,000 | 780,000 | | Total | 2,745,000 | 3,060,000 | ### Costs per Unit: | | 180,000 Units | 240,000 Units | |-----------------------------|---------------|----------------| | Manufacturing | $ 11.00 | $ 9.50 | | Selling and administrative | 4.25 | 3.25 | | Total | $ 15.25 | $ 12.75 | Sales to North American manufacturers are priced at $20 per unit, but the sales manager believes the company should aggressively seek the German business even if it results in a loss of $3.75 per unit. She believes obtaining this order would open up several new markets for the company's product. The general manager commented that the company cannot tighten its belt to absorb the $225,000 loss ($3.75 × 60,000) it would incur if the order is accepted. #### (a) Determine the financial implications of accepting the order. (Hint: Use the high-low method to determine variable costs per unit.) - **Accepting the offer will [blank] profits by [blank].** #### (b) How would your analysis differ if the company were operating at capacity? Determine the advantage or disadvantage of accepting the order under full
## Special Order: High-Low Cost Estimation SafeRide, Inc. produces air bag systems that it sells to North American automobile manufacturers. Although the company has a capacity of 300,000 units per year, it is currently producing at an annual rate of 180,000 units. SafeRide, Inc. has received an order from a German manufacturer to purchase 60,000 units at $9.00 each. Budgeted costs for 180,000 and 240,000 units are as follows: ### Budgeted Costs: | Manufacturing Costs | 180,000 Units | 240,000 Units | |-----------------------------|---------------|----------------| | Direct materials | $ 450,000 | $ 600,000 | | Direct labor | 315,000 | 420,000 | | Factory overhead | 1,215,000 | 1,260,000 | | Total | 1,980,000 | 2,280,000 | | Selling and administrative | 765,000 | 780,000 | | Total | 2,745,000 | 3,060,000 | ### Costs per Unit: | | 180,000 Units | 240,000 Units | |-----------------------------|---------------|----------------| | Manufacturing | $ 11.00 | $ 9.50 | | Selling and administrative | 4.25 | 3.25 | | Total | $ 15.25 | $ 12.75 | Sales to North American manufacturers are priced at $20 per unit, but the sales manager believes the company should aggressively seek the German business even if it results in a loss of $3.75 per unit. She believes obtaining this order would open up several new markets for the company's product. The general manager commented that the company cannot tighten its belt to absorb the $225,000 loss ($3.75 × 60,000) it would incur if the order is accepted. #### (a) Determine the financial implications of accepting the order. (Hint: Use the high-low method to determine variable costs per unit.) - **Accepting the offer will [blank] profits by [blank].** #### (b) How would your analysis differ if the company were operating at capacity? Determine the advantage or disadvantage of accepting the order under full
Chapter1: Financial Statements And Business Decisions
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Master Budget
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A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
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![## Special Order: High-Low Cost Estimation
SafeRide, Inc. produces air bag systems that it sells to North American automobile manufacturers. Although the company has a capacity of 300,000 units per year, it is currently producing at an annual rate of 180,000 units. SafeRide, Inc. has received an order from a German manufacturer to purchase 60,000 units at $9.00 each. Budgeted costs for 180,000 and 240,000 units are as follows:
### Budgeted Costs:
| Manufacturing Costs | 180,000 Units | 240,000 Units |
|-----------------------------|---------------|----------------|
| Direct materials | $ 450,000 | $ 600,000 |
| Direct labor | 315,000 | 420,000 |
| Factory overhead | 1,215,000 | 1,260,000 |
| Total | 1,980,000 | 2,280,000 |
| Selling and administrative | 765,000 | 780,000 |
| Total | 2,745,000 | 3,060,000 |
### Costs per Unit:
| | 180,000 Units | 240,000 Units |
|-----------------------------|---------------|----------------|
| Manufacturing | $ 11.00 | $ 9.50 |
| Selling and administrative | 4.25 | 3.25 |
| Total | $ 15.25 | $ 12.75 |
Sales to North American manufacturers are priced at $20 per unit, but the sales manager believes the company should aggressively seek the German business even if it results in a loss of $3.75 per unit. She believes obtaining this order would open up several new markets for the company's product. The general manager commented that the company cannot tighten its belt to absorb the $225,000 loss ($3.75 × 60,000) it would incur if the order is accepted.
#### (a) Determine the financial implications of accepting the order. (Hint: Use the high-low method to determine variable costs per unit.)
- **Accepting the offer will [blank] profits by [blank].**
#### (b) How would your analysis differ if the company were operating at capacity? Determine the advantage or disadvantage of accepting the order under full](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc94176f9-dee8-4d67-8062-e8526a7f9b2e%2F1a8c6cd6-bee7-411b-8528-e54677c8df67%2Fs241vff_processed.png&w=3840&q=75)
Transcribed Image Text:## Special Order: High-Low Cost Estimation
SafeRide, Inc. produces air bag systems that it sells to North American automobile manufacturers. Although the company has a capacity of 300,000 units per year, it is currently producing at an annual rate of 180,000 units. SafeRide, Inc. has received an order from a German manufacturer to purchase 60,000 units at $9.00 each. Budgeted costs for 180,000 and 240,000 units are as follows:
### Budgeted Costs:
| Manufacturing Costs | 180,000 Units | 240,000 Units |
|-----------------------------|---------------|----------------|
| Direct materials | $ 450,000 | $ 600,000 |
| Direct labor | 315,000 | 420,000 |
| Factory overhead | 1,215,000 | 1,260,000 |
| Total | 1,980,000 | 2,280,000 |
| Selling and administrative | 765,000 | 780,000 |
| Total | 2,745,000 | 3,060,000 |
### Costs per Unit:
| | 180,000 Units | 240,000 Units |
|-----------------------------|---------------|----------------|
| Manufacturing | $ 11.00 | $ 9.50 |
| Selling and administrative | 4.25 | 3.25 |
| Total | $ 15.25 | $ 12.75 |
Sales to North American manufacturers are priced at $20 per unit, but the sales manager believes the company should aggressively seek the German business even if it results in a loss of $3.75 per unit. She believes obtaining this order would open up several new markets for the company's product. The general manager commented that the company cannot tighten its belt to absorb the $225,000 loss ($3.75 × 60,000) it would incur if the order is accepted.
#### (a) Determine the financial implications of accepting the order. (Hint: Use the high-low method to determine variable costs per unit.)
- **Accepting the offer will [blank] profits by [blank].**
#### (b) How would your analysis differ if the company were operating at capacity? Determine the advantage or disadvantage of accepting the order under full
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