a.
Differential Analysis | |||
Reject Order (Alt. 1) or Accept Order (Alt. 2) | |||
January 21 | |||
Reject Order | Accept Order | Differential Effect on Income | |
(Alternative 1) | (Alternative 2) | (Alternative 2) | |
Revenues (34000 x $95.5) | 0 | 3247000 | 3247000 |
Costs: | |||
Direct materials (34000 x $43) | 0 | 1462000 | -1462000 |
Direct labor (34000 x $16) | 0 | 544000 | -544000 |
Variable factory overhead (34000 x $26 x 70%) | 0 | 618800 | -618800 |
Variable selling and admin. Expenses* | 0 | 119000 | -119000 |
Shipping cost (34000 x $6) | 0 | 204000 | -204000 |
Certification costs | 0 | 204000 | -204000 |
Income (Loss) | 0 | 95200 | 95200 |
Accept (Alternative 2)
*Variable selling and admin. Expense per unit = 40% x $23 = $9.20
Sales commission = 5% x $114 = $5.70
Variable selling and admin. Expense per unit on special order = $9.20 - $5.70 = $3.50
Variable selling and admin. Expense on special order = 34000 x $3.50 = $119000
Accept (Alternative 2)
b. Minimum price per unit that would be financially acceptable: $92.70
Total differential costs/Number of units = $3151800/34000 = $92.70
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