Decision on Accepting Additional Business Glide Ride Tire and Rubber Company has
ID: 2500616 • Letter: D
Question
Decision on Accepting Additional Business
Glide Ride Tire and Rubber Company has capacity to produce 264,000 tires. Glide Ride presently produces and sells 202,000 tires for the North American market at a price of $103.00 per tire. Glide Ride is evaluating a special order from a European automobile company, Euro Motors. Euro is offering to buy 31,000 tires for $86.55 per tire. Glide Ride's accounting system indicates that the total cost per tire is as follows:
Glide Ride 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 $6.00 per tire. In addition, Euro has made the order conditional on receiving European safety certification. Glide Ride estimates that this certification would cost $170,500.
a. Prepare a differential analysis dated May 4, 2014, on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors. If an amount is zero, enter zero "0". If required, round interim calculations to two decimal places.
Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
May 4, 2014
Reject Order (Alternative 1)
Accept Order (Alternative 2)
Differential Effect on Income (Alternative 2)
Revenues
$
$
$
Costs:
Direct materials
Direct labor
Variable factory overhead
Variable selling and admin. expenses
Shipping costs
Certification costs
Income (Loss)
$
$
$
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a. Follow Example Exercise 24-6. Subtract the additional costs (each unit cost multiplied by 31,000 tires) from the additional revenue ($86.55 multiplied by the number of tires in the offer). The variable selling and administrative expenses are 30% of $21, less 5% of $103.00 sales commission per unit.
Learning Objective 1.
Determine whether to reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors.
SelectAccept the special orderReject the special orderCorrect 1 of Item 2
b. What is the minimum price per unit that would be financially acceptable to Glide Ride? Round your answer to two decimal places.
$ per unit
Explanation / Answer
As we can see from above analysis additional quantity sold is result in additional revanue of $ 1,27,100.00, so it is suggested to accept the order of Euro Motors .
Note - For additional quantity
1 special price of 86.55 is used.
2 Special Rate of 1.15 is used for variable selling and admin expenses.
3 shipping cost is only applicable on additional quantity.
(b) Additional Cost of $25,55,950.00 is incurred,
so minimum acceptable price would be $ 25,55,950/31000 =$82.45
(a) May 4,2014 Reject Order (Alternative 1) Accept Order (Alternative 2) Differential Effect on Income (Alternative 2) Unit Sold-202000 Unit Sold-233000 For 31000 Unit Per Unit Cost/Price $ $ $ Revenues 103/86.55 2,08,06,000.00 2,34,89,050.00 26,83,050.00 Costs: Direct materials 39 78,78,000.00 90,87,000.00 12,09,000.00 Direct labor 14 28,28,000.00 32,62,000.00 4,34,000.00 Variable factory overhead 16.8 33,93,600.00 39,14,400.00 5,20,800.00 Variable selling and admin. expenses 6.3/1.15 12,72,600.00 13,08,250.00 35,650.00 Shipping costs 6 0 1,86,000.00 1,86,000.00 Certification costs 0 1,70,500.00 1,70,500.00 Income (Loss) 54,33,800.00 55,60,900.00 1,27,100.00Related Questions
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