Decision on Accepting Additional Business Brightstone Tire and Rubber Company has capacity to produce 238,000 tires. Brightstone presently produces and sells 182,000 tires for the North American market at a price of $89 per tire. Brightstone is evaluating a special order from a European automobile company, Euro Motors. Euro is offering to buy 28,000 tires for $75.15 per tire. Brightstone's accounting system indicates that the total cost per tire is as follows: Direct materials $34 Direct labor 12 Factory overhead (70% variable) 20 Selling and administrative expenses (40% variable) 18 Total $84 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 $5 per tire. In addition, Euro has made the order conditional on receiving European safety certification. Brightstone estimates that this certification would cost $131,600. a.  Prepare a differential analysis dated January 21 on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors. If an amount is zero, enter zero "0". If required, round interim calculations to two decimal places. Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) January 21   Reject Order (Alternative 1) Accept Order (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $ $ $ Costs:       Direct materials       Direct labor       Variable factory overhead       Variable selling and admin. expenses       Shipping costs       Certification costs       Income (Loss) $ $ $ Determine whether to reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors.   b.  What is the minimum price per unit that would be financially acceptable to Brightstone? Round your answer to two decimal places. $per unit

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Decision on Accepting Additional Business

Brightstone Tire and Rubber Company has capacity to produce 238,000 tires. Brightstone presently produces and sells 182,000 tires for the North American market at a price of $89 per tire. Brightstone is evaluating a special order from a European automobile company, Euro Motors. Euro is offering to buy 28,000 tires for $75.15 per tire. Brightstone's accounting system indicates that the total cost per tire is as follows:

Direct materials $34
Direct labor 12
Factory overhead (70% variable) 20
Selling and administrative expenses (40% variable) 18
Total $84

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 $5 per tire. In addition, Euro has made the order conditional on receiving European safety certification. Brightstone estimates that this certification would cost $131,600.

a.  Prepare a differential analysis dated January 21 on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors. If an amount is zero, enter zero "0". If required, round interim calculations to two decimal places.

Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
January 21
  Reject
Order
(Alternative 1)
Accept
Order
(Alternative 2)
Differential
Effect
on Income (Alternative 2)
Revenues $ $ $
Costs:      
Direct materials      
Direct labor      
Variable factory overhead      
Variable selling and admin. expenses      
Shipping costs      
Certification costs      
Income (Loss) $ $ $

Determine whether to reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors.
 

b.  What is the minimum price per unit that would be financially acceptable to Brightstone? Round your answer to two decimal places.
$per unit

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