Talladega Tire and Rubber Company has capacity to produce 170,500 tires. Talladega presently produces and sells 133,900 tires for the North American market at a price of $179 per tire. Talladega is evaluating a special order from a European automobile company, Autobahn Motors. Autobahn is offering to buy 19,500 tires for $110.95 per tire. Talladega’s accounting system indicates that the total cost per tire is as follows: Direct materials $54 Direct labor 21 Factory overhead (58% variable) 24 Selling and administrative expenses (40% variable) 28 Total $127 Talladega pays a selling commission equal to 5% 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 $7.56 per tire. In addition, Autobahn has made the order conditional on receiving European safety certification. Talladega estimates that this certification would cost $156,000. Required: a. Prepare a differential analysis dated July 31 on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. b. Determine whether the company should reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors c. What is the minimum price per unit that would be financially acceptable to Talladega? Round your answer to two decimal places.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 4CE

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Talladega Tire and Rubber Company has capacity to produce 170,500 tires. Talladega presently produces and sells 133,900 tires for the North American market at a price of $179 per tire. Talladega is evaluating a special order from a European automobile company, Autobahn Motors. Autobahn is offering to buy 19,500 tires for $110.95 per tire. Talladega’s accounting system indicates that the total cost per tire is as follows:


Direct materials	$54
Direct labor	21
Factory overhead (58% variable)	24
Selling and administrative expenses (40% variable)	28
Total	$127

Talladega pays a selling commission equal to 5% 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 $7.56 per tire. In addition, Autobahn has made the order conditional on receiving European safety certification. Talladega estimates that this certification would cost $156,000.

	Required:
a.	Prepare a differential analysis dated July 31 on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.
b.	Determine whether the company should reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors
c.	What is the minimum price per unit that would be financially acceptable to Talladega? Round your answer to two decimal places.

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