I tried these values and it didnt work need help now. I have few days to work on
ID: 2455825 • Letter: I
Question
I tried these values and it didnt work need help now. I have few days to work on it so i am not in rush. Thanks
Brightstone Tire and Rubber Company has capacity to produce 194,000 tires. Brightstone presently produces and sells 134,900 tires for the North American market at a price of $180 per tire. Brightstone is evaluating a special order from a European automobile company, Euro Motors. Euro is offering to buy 19,400 tires for $115.60 per tire. Brightstone’s accounting system indicates that the total cost per tire is as follows:
Brightstone pays a selling commission equal to 4% 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 $7.01 per tire. In addition, Euro has made the order conditional on receiving European safety certification. Brightstone estimates that this certification would cost $162,184.
What is the minimum price per unit that would be financially acceptable to Brightstone?
Direct materials $57 Direct labor 20 Factory overhead (57% variable) 26 Selling and administrative expenses (46% variable) 26 Total $129.00Explanation / Answer
Brightstone Tyre Co. should accept the special order from Euro Motors as it would lead to additional profit of $ 70,810, as worked out below:
Assuming that there are no additional fixed costs involved in executing the special order from Euro Motors, the order should be accepted as it would lead to an additional contribution margin of $ 70,810 towards fixed cost and profit.
2. The minimum price that should be financially acceptable to Brightstone is the marginal cost of producing the additional units ,i.e $2,171,830/19400 = $111.95
Reject Order Accept Order Differential Effect on Income $ $ $ Sales( 19,400 x 115.60) 24,282,000 26,524,640 2,242,640 Less variable costs Direct materials 7,689,300 8,795,100 (1,105,800) Direct labor 2,698,000 3,086,000 (388,000) Variable factory overhead 1,999,218 2,286,726 (287,508) Variable selling and administrative overheads 1,613,404 1,705,748 (92344) Shipping Costs - 135,994 (135,994) Certification cost - 162,184 (162,184) Total relevant cost 2,171,830 Increase ( Decrease ) in Net Income 10,282,078 10,352,888 70,810