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Special Order: High-Low Cost Estimation SafeRide, Inc. produces air bag systems that it sells to North American automobile manufacturers. Although the company has a capacity of 300,000 units per year, it is currently producing at an annual rate of 180,000 units. SafeRide, Inc. h received an order from a German manufacturer to purchase 60,000 units at $11.00 each. Budgeted costs for 180,000 and 240,000 units are as follows: 180,000 Units 240,000 Units Manufacturing costs Direct materials Direct labor Factory overhead Total Total Selling and administrative selling Total rower Costs per unit Manufacturing Selling and administrative Total $450,000 315,000 1,215,000 1,260,000 2,280,000 780,000 $2,745,000 $3,060,000 1,980,000 765,000 $600,000 420,000 $11.00 4.25 $15.25 $9.50 3.25 $12.75 Sales to North American manufacturers are priced at $23 per unit, but the sales manager believes the company should aggressively seek the German business even if it results in a loss of $1.75 per unit. She believes obtaining this order would open up several new markets for the company's product. The general manager commented that the company cannot tighten its belt to absorb the $105,000 loss ($1.75 x 60,000) it would incur if the order is accepted. (a) Determine the financial implications of accepting the order. (Hint: Use the high-low method to determine variable costs per unit.) Accepting the offer will increase profits by 5

Special Order: High-Low Cost Estimation SafeRide, Inc. produces air bag systems that it sells to North American automobile manufacturers. Although the company has a capacity of 300,000 units per year, it is currently producing at an annual rate of 180,000 units. SafeRide, Inc. h received an order from a German manufacturer to purchase 60,000 units at $11.00 each. Budgeted costs for 180,000 and 240,000 units are as follows: 180,000 Units 240,000 Units Manufacturing costs Direct materials Direct labor Factory overhead Total Total Selling and administrative selling Total rower Costs per unit Manufacturing Selling and administrative Total $450,000 315,000 1,215,000 1,260,000 2,280,000 780,000 $2,745,000 $3,060,000 1,980,000 765,000 $600,000 420,000 $11.00 4.25 $15.25 $9.50 3.25 $12.75 Sales to North American manufacturers are priced at $23 per unit, but the sales manager believes the company should aggressively seek the German business even if it results in a loss of $1.75 per unit. She believes obtaining this order would open up several new markets for the company's product. The general manager commented that the company cannot tighten its belt to absorb the $105,000 loss ($1.75 x 60,000) it would incur if the order is accepted. (a) Determine the financial implications of accepting the order. (Hint: Use the high-low method to determine variable costs per unit.) Accepting the offer will increase profits by 5

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter8: Tactical Decision-making And Relevant Analysis
Section: Chapter Questions
Problem 54P
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Special Order: High-Low Cost Estimation SafeRide, Inc. produces air bag systems that it sells to North American automobile manufacturers. Although the company has a capacity of 300,000 units per year, it is currently producing at an annual rate of 180,000 units. SafeRide, Inc. has received an order from a German manufacturer to purchase 60,000 units at $11.00 each. Budgeted costs for 180,000 and 240,000 units are as follows: 180,000 Units 240,000 Units Manufacturing costs Direct materials Direct labor Factory overhead Total Selling and administrative Total Costs per unit Manufacturing Selling and administrative Total $600,000 $450,000 315,000 420,000 1,215,000 1,260,000 1,980,000 2,280,000 765,000 780,000 $2,745,000 $3,060,000 $11.00 4.25 $15.25 $9.50 3.25 $12.75 Sales to North American manufacturers are priced at $23 per unit, but the sales manager believes the company should aggressively seek the German business even if it results in a loss of $1.75 per unit. She believes obtaining this order would open up several new markets for the company's product. The general manager commented that the company cannot tighten its belt to absorb the $105,000 loss ($1.75 × 60,000) it would incur if the order is accepted. (a) Determine the financial implications of accepting the order. (Hint: Use the high-low method to determine variable costs per unit.) Accepting the offer will increase profits by $
Transcribed Image Text:Special Order: High-Low Cost Estimation SafeRide, Inc. produces air bag systems that it sells to North American automobile manufacturers. Although the company has a capacity of 300,000 units per year, it is currently producing at an annual rate of 180,000 units. SafeRide, Inc. has received an order from a German manufacturer to purchase 60,000 units at $11.00 each. Budgeted costs for 180,000 and 240,000 units are as follows: 180,000 Units 240,000 Units Manufacturing costs Direct materials Direct labor Factory overhead Total Selling and administrative Total Costs per unit Manufacturing Selling and administrative Total $600,000 $450,000 315,000 420,000 1,215,000 1,260,000 1,980,000 2,280,000 765,000 780,000 $2,745,000 $3,060,000 $11.00 4.25 $15.25 $9.50 3.25 $12.75 Sales to North American manufacturers are priced at $23 per unit, but the sales manager believes the company should aggressively seek the German business even if it results in a loss of $1.75 per unit. She believes obtaining this order would open up several new markets for the company's product. The general manager commented that the company cannot tighten its belt to absorb the $105,000 loss ($1.75 × 60,000) it would incur if the order is accepted. (a) Determine the financial implications of accepting the order. (Hint: Use the high-low method to determine variable costs per unit.) Accepting the offer will increase profits by $
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