Question

Accept Business at Special Price

Product R is normally sold for $49 per unit. A special price of $34 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 that there is sufficient capacity for the special order.

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	$	$	$

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

Answer 1

Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
March 16
	Reject Order	Accept Order	Differential Effect
	(Alternative 1)	(Alternative 2)	on Income
			(Alternative 2)
Revenues, per unit	0	34.00	34.00
Costs:
Variable manufacturing costs, per unit	0	-25.00	-25.00
Export tariff, per unit	0	-5.44	-5.44
Income (Loss), per unit	0	3.56	3.56
Accept the special order
Workings:
Export tariff, per unit	5.44	=34*16%