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: Direct materials Direct labor Factory overhead (70% variable) Selling and administrative expenses (60% variable) Total $75 20 30 18 $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. If an amount is zero, enter "0". If required, round interim calculations to two decimal places.
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: Direct materials Direct labor Factory overhead (70% variable) Selling and administrative expenses (60% variable) Total $75 20 30 18 $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. If an amount is zero, enter "0". If required, round interim calculations to two decimal places.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
99
Transcribed Image Text:on on Accepting Additional Business
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:
Direct materials
Direct labor
Factory overhead (70% variable)
Selling and administrative expenses (60% variable)
Total
$75
20
30
18
$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. If an
amount is zero, enter "0". If required, round interim calculations to two
decimal places:
Transcribed Image Text:Line Item
Description
Revenues
Costs:
1
Direct materials
Direct labor
Variable factory
overhead
Variable selling
and admin.
Differential Analysis
Reject (Alt. 1) or Accept (Alt. 2) Order
July 31
expenses
Shipping costs
Certification costs
Profit (loss)
Reject Order
(Alternative 1)
000
Accept Order
(Alternative 2)
Differential
Effects
(Alternative 2)
000 0000
00
Determine 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? Round your answer to two decimal places.
per unit
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education