Friday, October 26, 2018

Product A is normally sold for $9.60 per unit. A special price of $7.20 is offered for the export market.


Product A is normally sold for $9.60 per unit. A special price of $7.20 is offered for the export market. The variable production cost is $5.00 per unit. An additional export tariff of 15% of revenue must be paid for all export products. Assume there is sufficient capacity for the special order. Prepare a differential analysis dated March 16, 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) 
March 16, 2014 
Reject 
Order 
(Alternative 1) 
Revenues, per unit $0.00 $7.20 $7.20 
Costs:    
Variable manufacturing costs, per unit 0.00 –5.00 –5.00 
Export tariff, per unit 0.00 –1.08* –1.08 
Income (Loss), per unit $0.00 $1.12 $1.12 
    
* $7.20 × 15% 
The company should accept the special order. 

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