Brightstone Tire and Rubber Company has capacity to produce 170,000 tires. Brightstone presently produces and sells 130,000 tires for the North American market at a price of $175 per tire. Brightstone is evaluating a special order from a European automobile company, Euro Motors. Euro is offering to buy 20,000 tires for $116 per tire. Brightstone's accounting system indicates that the total cost per tire is as follows: Direct materials Direct labor Factory overhead (60% variable) Selling and administrative expenses (45% variable) Total $ 56 22 25 26 $129 Excel Show Me How Brightstone 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 $7.50 per tire. In addition, Euro has made the order conditional on receiving European safety certification. Brightstone estimates that this certification would cost $165,000.

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EX25-15

a.
b.
Revenues
Costs:
Direct materials
Direct labor
Variable factory overhead
Variable selling and admin. expenses
Shipping costs
Certification costs
Income (loss)
Brightstone
Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
January 21
Minimum Price per Unit
Alternative calculation:
Selling Price Offered
by Euro Motors
=
Reject Order
(Alternative 1)
accept the special order from Euro Motors.
Total Differential Costs
Number of Units
Differential Income from
Accepting Special Order
Number of Units
Accept Order
(Alternative 2)
||
||
Differential Effect
on Income
(Alternative 2)
Transcribed Image Text:a. b. Revenues Costs: Direct materials Direct labor Variable factory overhead Variable selling and admin. expenses Shipping costs Certification costs Income (loss) Brightstone Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) January 21 Minimum Price per Unit Alternative calculation: Selling Price Offered by Euro Motors = Reject Order (Alternative 1) accept the special order from Euro Motors. Total Differential Costs Number of Units Differential Income from Accepting Special Order Number of Units Accept Order (Alternative 2) || || Differential Effect on Income (Alternative 2)
Brightstone Tire and Rubber Company has capacity to produce 170,000 tires.
Brightstone presently produces and sells 130,000 tires for the North American
market at a price of $175 per tire. Brightstone is evaluating a special order from a
European automobile company, Euro Motors. Euro is offering to buy 20,000 tires for
$116 per tire. Brightstone's accounting system indicates that the total cost per tire is
as follows:
Direct materials
Direct labor
Factory overhead (60% variable)
Selling and administrative expenses ( 45 % variable)
Total
$ 56
22
25
26
$129
Excel
Show
Me
How
Brightstone 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 $7.50 per tire. In addition, Euro has made the
order conditional on receiving European safety certification. Brightstone estimates that this
certification would cost $165,000.
Transcribed Image Text:Brightstone Tire and Rubber Company has capacity to produce 170,000 tires. Brightstone presently produces and sells 130,000 tires for the North American market at a price of $175 per tire. Brightstone is evaluating a special order from a European automobile company, Euro Motors. Euro is offering to buy 20,000 tires for $116 per tire. Brightstone's accounting system indicates that the total cost per tire is as follows: Direct materials Direct labor Factory overhead (60% variable) Selling and administrative expenses ( 45 % variable) Total $ 56 22 25 26 $129 Excel Show Me How Brightstone 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 $7.50 per tire. In addition, Euro has made the order conditional on receiving European safety certification. Brightstone estimates that this certification would cost $165,000.
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