Friday, October 26, 2018

Product R is normally sold for $52 per unit. A special price of $39 is offered for the export market


Product R is normally sold for $52 per unit. A special price of $39 is offered for the export market. The variable production cost is $31 per unit. An additional export tariff of 25% of revenue must be paid for all export products. Assume there is sufficient capacity for the special order. Prepare a differential analysis dated October 23, 2014, on whether to reject (Alternative 1) or accept (Alternative 2) the special order.

Answer:
Differential Analysis 
Reject Order (Alt. 1) or Accept Order (Alt. 2) 
October 23, 2014 
Reject Order 
(Alternative 1) 
Revenues, per unit $0.00 $39.00 $39.00 
Costs:    
Variable manufacturing costs, per unit 0.00 –31.00 –31.00 
Export tariff, per unit 0.00 –9.75* –9.75 
Income (Loss), per unit $0.00 –$  1.75 –$  1.75 
    
* $39.00 × 25% 
The company should not accept the special order. 

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