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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Accept business at special price

Product AA is normally sold for $120 per unit. A special price of $112 is offered for the export market. The variable production cost is $80 per unit. An additional export tariff of 30% of revenue must he paid tor all export products. Assume that there is sufficient capacity for the special order. Prepare a differential analysis dated March 5 on whether to reject (Alternative 1) or accept (Alternative 2) the special order.

To determine

Differential Analysis: Differential analysis refers to the analysis of differential revenue that could be gained or differential cost that could be incurred from the available alternative options of business.

To Prepare: The differential analysis to decide whether to reject or accept the special order.

Explanation

A company has two alternatives either to reject an order or to accept an order to sell the Product AA at a special price of $112 per unit. The variable cost in production comes around $80per unit and export charges come up to 30% of selling price, $33.60 per unit. It clearly shows a loss of $1.60 per unit if the order is accepted; hence the order should be rejected.

Working Note:

Calculate the export tariff per unit for Product AA...

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