Question

1. Accept Business at Special Price

   Product A is normally sold for $46 per unit. A special price of $33 is offered for the export market. The variable production cost is $25 per unit. An additional export tariff of 13% of revenue must be paid for all export products. Assume there is sufficient capacity for the special order.

   a. Prepare a differential analysis dated March 16 on whether to reject (Alternative 1) or accept (Alternative 2) the special order. If required, round your answers to two decimal places. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

   Differential Analysis
   Reject Order (Alt. 1) or Accept Order (Alt. 2)
   March 16
   	Reject Order (Alternative 1)	Accept Order (Alternative 2)	Differential Effect on Income (Alternative 2)
   Revenues, per unit	$	$	$
   Costs:
   Variable manufacturing costs, per unit
   Export tariff, per unit
   Income (Loss), per unit	$	$	$

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   Subtract the additional costs from the additional revenues for accepting the order.

   Learning Objective 1.

   b. Should the special order be rejected (Alternative 1) or accepted (Alternative 2)?
   Accept the special order

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   Compare the differential revenues and differential costs of refecting vs. accepting. Which one has the greatest positive differential effect on income?

   Learning Objective 1.

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   Partially correct

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Answer 1

a.

Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
March 16
	Reject Order (Alternative 1)	Accept Order (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues, per unit	$0	$33	$33
Costs:
Variable manufacturing costs, per unit	0	25	(25)
Export tariff, per unit	0	33*13% = 4.29	(4.29)
Income (Loss), per unit	$0	$3.71	$3.71
b.special order should be accepted.