Question

Accept Business at Special Price

Product R is normally sold for $49 per unit. A special price of $30 is offered for the export market. The variable production cost is $24 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.

Prepare a differential analysis dated July 7, 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 zero "0".

Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
July 7
	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	$	$	$

Answer 1

Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
7-Jul
	Reject Order (Alternative 1)	Accept Order (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues, per unit	$ 0	$ 30	$ 30
Costs:
Variable manufacturing costs, per unit	$ 0	$ 24	$ 24
Export tariff, per unit	$ 0	$ 4.8	$ 4.8
Income (Loss), per unit	$ 0	$ 1.2	$ 1.2

There is an additional benefit of $1.2 per unit if export order is accepted. Hence order should be accepted.

Alternative 1 amounts are all Zero because how many products are currently selling is not given. Altogether if current sales units are provided, the final answer would still be to accept special order at sales price of $30.

Relevant cost per product is lower than sales price , hence order is profitable.