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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Decision on accepting additional business
Miramar Tire and Rubber Company has capacity to produce 250,000 tires. Miramar presently produces and sells 200.000 tires for the North American market at a price of $40 per lire. Miramar is evaluating a special order from a South American automobile company. Rio Motors. Rio Motors is offering to buy 40.000 tires for $20 per tire. Miramar's accounting system indicates that the total cost per tire is as follows:


Miramar pays a sales commission equal to 4% 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 $1.50 per tire. In addition Rio has made the order conditional on Miramar Tire and Rublxrr Company receiving a Brazilian safety certification. Rio estimates that this certification would cost Miramar Tire $20,000.
a.Prepare a differential analysis report for the proposed sale to Rio Motors.
b.What is the minimum price per unit that would be financially acceptable lo Miramar?

To determine

Concept Introduction:

Decision making plays an important role in the management. The decisions taken by managers are called managerial decisions. Managerial Decisions are decisions taken by managers for the operations of a firm. These decisions include setting target growth rates, hiring or firing employees, and deciding what products to sell. Manager's decisions are taken on the basis of quantitative as well as the qualitative measures. The managerial decision includes the decisions like make or buy, accept or reject new offers, sell or further process etc. These decisions are taken on the basis of relevant costs.

Relevant costs are the costs that are relevant for any decision making. Relevant costs are helpful for take managerial decisions like make or buy, accept or reject new offers, sell or further process etc.

Two basic types of the relevant costs are as follows:

  1. Out-of-pocket costs
  2. Opportunity costs

Requirement-a:

To Calculate:

The budgeted cost per unit

Explanation

The budgeted cost per unit is calculated as follows:

To determine

Concept Introduction:

Decision making plays an important role in the management. The decisions taken by managers are called managerial decisions. Managerial Decisions are decisions taken by managers for the operations of a firm. These decisions include setting target growth rates, hiring or firing employees, and deciding what products to sell. Manager's decisions are taken on the basis of quantitative as well as the qualitative measures. The managerial decision includes the decisions like make or buy, accept or reject new offers, sell or further process etc. These decisions are taken on the basis of relevant costs.

Relevant costs are the costs that are relevant for any decision making. Relevant costs are helpful for take managerial decisions like make or buy, accept or reject new offers, sell or further process etc.

Two basic types of the relevant costs are as follows:

  1. Out-of-pocket costs
  2. Opportunity costs

Requirement-b:

To Calculate:

The minimum bid price

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