Question

Accept Business at Special Price

Product A is normally sold for $41 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 16% 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   $
$
$
b. Should the special order be rejected (Alternative 1) or accepted (Alternative 2)?

Answer 1

a
	Reject Order	Accept Order	Differential Effect on Income
	(Alternative 1)	(Alternative 2)	(Alternative 2)
Revenues, per unit	0	33.00	33.00
Costs:
Variable manufacturing costs, per unit	0	-25.00	-25.00
Export tariff, per unit	0	-5.28	-5.28
Income (Loss), per unit	0	2.72	2.72
b
The special order should be accepted
Workings:
Export tariff, per unit	5.28	=33*16%