Question

Decision on Accepting Adrional business B 117,000 tires for the North Amecamat a price of $109 per s ones g r ans the pers per Brightone is in eton Ted Rubber Company has capacity to produce 153,000 tres t ne presne produces and a special order from a treatment commune Motor turistering to buy 1,000 for Direct materials Direct label Factory overhead (60% arabe) Sering and ac t ive expenses ) Brightone pas selling commonewal te of the selling price on North American orders induded in the warble portion of these ortation angstons estimates that this certification would cost $104.400 and di v er s e order emove 1) or Alive 2) the Prepare aderanalyse dated Manuary 21 on whether to r cations to the decimal places Differential Analysis Reject Order (A1) or Act Order ( A2) r e from tur Motor anonte me d round ( Amativ 1) ( Amative 2) on Inc e ntive 2) Direct materials compenses

Answer 1

DIFFERENTIAL ANALYSIS Reject Order(Alt.1) or Accept Order(Alt.2) Reject order Accept Order Diferential Effect Alternative 1 Alternative 2 on Income Revenue 12753000 14318100 1565100 Costs Direct Material 4797000 5535000 738000 Direct Labour 1755000 2025000 270000 Variable Factory Overhead 1755000 2025000 270000 Variable Selling & Admin 772200 792900 20700 Shipping Cost 0 108000 108000 Certification Costs 0 104400 104400 INCOME(LOSS) 3673800 3727800 54000 Calculation of Variable Selling and Administrative overheads (Alternative 2) Particulars Amount Selling & Admin OH per unit $22 Total Units 135000 =117,000+18,000 Total Selling & Admin 2970000 =22 x 135000 % of Variable OH 30% Variable Overheads 891000 =2,970,000 x 30% % of Comission per unit 5% Selling Price $109 (Working Note) Less: Comission on 18,000 units 98100 =18000 x $109 x 5% Actual Variable Selling & Admin 792900 =$891,000-$792,900 =(117000+18000) x 22 x 30%-(18000 x 109 x 5%

b Minimum price per unit that would be financially acceptable Calculation of minimum price for the Special Order Particulars Amount Calculation Direct Material 738000 =18,000 x $41 Direct Labour 270000 =18,000 x $15 Variable Factory Overhead 270000 =18,000 x $25 x 60% Variable Selling & Admin 20700 =(18000 x $22 x 30%)-(18,000 x 109 x 5%) Shipping Cost 108000 =18,000 x $6 Certification Costs 104400 (Given) TOTAL COSTS 1511100 TOTAL UNITS 18,000 units COST PER UNIT 83.95 (Total costs/total units)

Working Notes

1.In question it is mentioned that comission is 5%of sales price is included in variable selling and admin nexpenses

The 5% commiison expenses are included on the basis of original selling price that is $109 not the selling price of the special order. So while deduction the selling commission expenses of 18,000units selling price of $109 should be considered not special order selling price.

The details of calculation are provided in above pictire.

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