Waterways mass-produces a special connector unit that it normally sells for $3.60. It sells approximately 31,700 of these units each year. The variable costs for each unit are $2.10. A company in Canada that has been unable to produce enough of a similar connector to meet customer demand would like to buy 16,500 of these units at $2.40 per unit. The production of these units is near full capacity at Waterways, so to accept the offer from the Canadian company would require temporarily adding another shift to its production line. To do this would increase variable manufacturing costs by $0.30 per unit. However, variable selling costs would be reduced by $0.20 a unit. An irrigation company has asked for a special order of 2,100 of the connectors. To meet this special order, Waterways would not need an additional shift, and the irrigation company is willing to pay $

Waterways mass-produces a special connector unit that it normally sells for $3.60. It sells approximately 31,700 of these units each year. The variable costs for each unit are $2.10. A company in Canada that has been unable to produce enough of a similar connector to meet customer demand would like to buy 16,500 of these units at $2.40 per unit. The production of these units is near full capacity at Waterways, so to accept the offer from the Canadian company would require temporarily adding another shift to its production line. To do this would increase variable manufacturing costs by $0.30 per unit. However, variable selling costs would be reduced by $0.20 a unit. An irrigation company has asked for a special order of 2,100 of the connectors. To meet this special order, Waterways would not need an additional shift, and the irrigation company is willing to pay $

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 15E

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Davao has a potential foreign customer that has offered to buy 1,500 tons at P450 per ton. Assume that all of Davao’s costs would be at the same levels and rates as last year. What net income after taxes would Davao make if it took this order and rejected some business from regular customers so as not to exceed capacity? Without prejudice to your answers to previous questions, and assume that Davao plans to market its product in a new territory. Davao estimates that an advertising and promotion program costing P61,500 annually would need to be undertaken for the next two or three years. In addition, a P25 per ton sales commission over and above the current commission to the sales force in the new territory would be required. How many tons would have to be sold in the new territory to maintain Davao’s current after-tax income of P94,500? If the sales volume is estimated to be 2,100 tons in the next year, and if the prices and costs stay at the same levels and amounts next year, the…
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