Question

Accept Business at Special Price

Product A is normally sold for $48 per unit. A special price of $30 is offered for the export market. The variable production cost is $24 per unit. An additional export tariff of 15% of revenue must be paid for all export products. Assume there is sufficient capacity for the special order.

a. Prepare a differential analysis dated March 16 on whether to reject (Alternative 1) or accept (Alternative 2) the special order. If required, round your answers to two decimal places. If an amount is zero, enter "0".

Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
March 16
	Reject Order (Alternative 1)	Accept Order (Alternative 2)	Differential Effects (Alternative 2)
Revenues, per unit	$	$	$
Costs:
Variable manufacturing costs, per unit
Export tariff, per unit
Profit (loss), per unit	$	$	$

Answer 1

	Reject order	Accept order	Differential Effects
	(Alternative 1)	(Alternative 2)	(Alternative 2)
Revenues, per unit	0	30	30
Costs:
Variable manufacturing costs, per unit	0	-24	-24
Export tariff, per unit	0	-4.5 [20*15%]	-4.5
Profit (loss), per unit	0	1.5	1.5

We should accept the project as there is a profit of $1.5 per unit