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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 A is normally sold for $9.60 per unit. A special price of $7.20 is offered for the export market. The variable production cost is $5.00 per unit. An additional export tariff of 15% of revenue must be paid for all export products. Assume that there is sufficient, capacity for the special older. Prepare a differential analysis dated Mardi 16 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 A at a special price of $7.20 per unit. The variable cost in production comes around $5 per unit and export charges come up to 15% of selling price, $1.08 per unit. It clearly shows a profit of $1.12 per unit if the order is accepted; hence the order should be accepted.

Working Note:

Calculate the export tariff per unit for Product A.

Export tariff  = $7

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