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Pº Revenues Costs: Direct materials Direct labor Variable factory overhead Variable selling and admin. expenses Shipping costs Certification costs Income (loss) Brightstone should 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) $(2,320,000) * 1,120,000 440,000 300,000 116,000 150,000 165,000 Total Differential Costs Number of Units Accept Order (Alternative 2) $ 2,320,000 accept the special order from Euro Motors. Differential Income from Accepting Special Order Number of Units (1,120,000) (440,000) (300,000) (116,000) (150,000) (165,000) 1-C || Differential Effect on Income (Alternative 2) $ 2,320,000 (1,120,000) (440,000) (300,000) (116,000) * (150,000) (165,000)

Pº Revenues Costs: Direct materials Direct labor Variable factory overhead Variable selling and admin. expenses Shipping costs Certification costs Income (loss) Brightstone should 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) $(2,320,000) * 1,120,000 440,000 300,000 116,000 150,000 165,000 Total Differential Costs Number of Units Accept Order (Alternative 2) $ 2,320,000 accept the special order from Euro Motors. Differential Income from Accepting Special Order Number of Units (1,120,000) (440,000) (300,000) (116,000) (150,000) (165,000) 1-C || Differential Effect on Income (Alternative 2) $ 2,320,000 (1,120,000) (440,000) (300,000) (116,000) * (150,000) (165,000)

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter18: Pricing And Profitability Analysis
Section: Chapter Questions
Problem 4CE: Refer to Cornerstone Exercise 18.3. Required: 1. Calculate the cost of each unit using variable...
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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.
Pº Revenues Costs: Direct materials Direct labor Variable factory overhead Variable selling and admin. expenses Shipping costs Certification costs Income (loss) Brightstone should 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) $(2,320,000) * 1,120,000 440,000 300,000 116,000 150,000 165,000 Total Differential Costs Number of Units Accept Order (Alternative 2) $ 2,320,000 accept the special order from Euro Motors. Differential Income from Accepting Special Order Number of Units (1,120,000) (440,000) (300,000) (116,000) (150,000) (165,000) 1-C || Differential Effect on Income (Alternative 2) $ 2,320,000 (1,120,000) (440,000) (300,000) (116,000) * (150,000) (165,000)
Transcribed Image Text:Pº Revenues Costs: Direct materials Direct labor Variable factory overhead Variable selling and admin. expenses Shipping costs Certification costs Income (loss) Brightstone should 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) $(2,320,000) * 1,120,000 440,000 300,000 116,000 150,000 165,000 Total Differential Costs Number of Units Accept Order (Alternative 2) $ 2,320,000 accept the special order from Euro Motors. Differential Income from Accepting Special Order Number of Units (1,120,000) (440,000) (300,000) (116,000) (150,000) (165,000) 1-C || Differential Effect on Income (Alternative 2) $ 2,320,000 (1,120,000) (440,000) (300,000) (116,000) * (150,000) (165,000)
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