Answer:
A. Differential Analysis dated March 16:
Reject Accept Difference
Alternative 1 Alternative 2
Sales revenue per unit $0 $32 $32
Variable cost per unit 0 30.80 -30.80
Contribution margin 0 $1.20 $1.20
B. The special order should be accepted (Alternative 2).
2. A. Differential Analysis as of May 9:
Continued Discontinued
Alternative 1 Alternative 2
Revenue = $39,500 $0
Variable cost of goods sold = $25,500 0
Variable selling expense = 16,500 0
Total variable costs = $42,000 0
Contribution margin ($2,500) $0
Fixed costs 15,000 15,000
Total loss from operations $17,500 $15,000
B. Product B should be discontinued (Alternative 2).
Explanation:
a) Data and Calculations: Per Unit %
Normal price of Product A per unit = $47 100%
Variable production cost per unit = 26 55.3%
Contribution margin per unit = $21 44.7%
Special price for export market = $32
Additional export tariff = $4.80 ($32 * 15%)
Total variable cost per exported product = $30.80 ($26 + $4.80)
Differential Analysis dated March 16:
Normal Export Difference
Sales price per unit $47 $32 $15
Variable cost per unit 26 30.80 (4.80)
Contribution margin $21 $1.20 $19.80
Product B
Revenue = $39,500
Variable cost of goods sold = $25,500
Variable selling expense = 16,500
Total variable costs = $42,000
Fixed costs = 15,000
Total costs = $57,000
Loss from operations = $17,500
b) Product B can only be continued if the future market possibilities will enable it to turn around and make at least a total revenue of $57,000. But for now, it should be discontinued.
