Accounting, Chapters 14-26
27th Edition
ISBN: 9781337514095
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Question
Chapter 25, Problem 25.15EX
a)
To determine
Differential Analysis: Differential analysis refers to the analysis of differential revenue that could be gained or differential cost that could be incurred from the available alternative options of business.
To Prepare: The differential analysis of Company BTR on January 21, to decide whether to reject or accept the proposal.
b)
To determine
The minimum price per unit which would be financially accepted by Company BTR.
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Decision on Accepting Additional Business
Brightstone Tire and Rubber Company has capacity to produce 247,000 tires. Brightstone presently produces and sells 189,000 tires for the North American market at a price of $93 per tire. Brightstone is evaluating a special order from a European automobile company, Euro Motors. Euro is offering to buy 29,000 tires for $78.15 per tire. Brightstone's accounting system indicates that the total cost per tire is as follows:
Direct materials
$35
Direct labor
13
Factory overhead (70% variable)
21
Selling and administrative expenses (40% variable)
19
Total
$88
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…
Decision on Accepting Additional Business
Brightstone Tire and Rubber Company has capacity to produce 153,000 tires. Brightstone presently produces and sells 117,000 tires for the North American market at a price of $94 per tire. Brightstone is evaluating a special order from a European automobile company, Euro Motors. Euro is offering to buy 18,000 tires for $78.5 per tire. Brightstone's accounting system indicates that the total cost per tire is as follows:
Direct materials
$36
Direct labor
13
Factory overhead (60% variable)
22
Selling and administrative expenses (40% variable)
19
Total
$90
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…
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…
Chapter 25 Solutions
Accounting, Chapters 14-26
Ch. 25 - Explain the meaning of (a) differential revenue,...Ch. 25 - A company could sell a building for 250,000 or...Ch. 25 - A chemical company has commodity-grade and...Ch. 25 - A company accepts incremental business at a...Ch. 25 - A company fabricates a component at a cost of...Ch. 25 - Prob. 6DQCh. 25 - In the long run, the normal selling price must be...Ch. 25 - Although the cost-plus approach to product pricing...Ch. 25 - How does the target cost concept differ from...Ch. 25 - Prob. 10DQ
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