Answer:
A. Reject (Alternative 1) $0
Accept (Alternative 2) -$815,584
Differential effect Income (Alternative 2) -$815,584
B. Goodman should REJECT the special order from Euro Motors
C.$115.69
Explanation:
a. Preparation of a differential analysis dated January 21
DIFFERENTIAL ANALYSIS
Reject (Alternative 1) Accept (Alternative 2) Differential effect Income (Alternative 2)
Revenues $0 $1,613,850 $1,613,850
(21,000 tires × $76.85 per tire)
Costs:
Direct materials 0 –$1,134,000 $1,134,000
(21,000 tires × $54 per tire)
Direct labor 0 –$504,000 $504,000
(21,000 tires × 24 per tire)
Variable factory overhead 0 –$312,480 $312,480
[21,000 tires × ($24 per tire × 62%)]
Variable selling and admin.
expenses 0 –$152,880 $152,880
21,000 tires × [(25 per tire × 44%) – ($93 × 4%)]
Shipping costs 0 –$160,650 $160,650
(21,000 tires × $7.65 per tire)
Certification costs 0 –$165,424 –$165,424
Income (Loss) $0 -$815,584 -$815,584
B. Based on the above Differentials analysis Brightstone should REJECT the special order from Euro Motors.
C. Calculation to determine minimum price per unit that would be financially acceptable to Brightstone
Minimum price per unit =$76.85-(-$815,584/21,000)
Minimum price per unit =$76.85-(-$38.84)
Minimum price per unit=$115.69
Therefore minimum price per unit that would be financially acceptable to Brightstone is $115.69
