Talladega Tire and Rubber Company has capacity to produce 194,000 tires. Talladega presently produces and sells 134,900 tires for the North American market at a price of $180 per tire. Talladega is evaluating a special order from a European automobile company, Autobahn Motors. Autobahn is offering to buy 19,400 tires for $115.60 per tire. Talladega’s accounting system indicates that the total cost per tire is as follows: Direct materials $57 Direct labor 20 Factory overhead (57% variable) 26 Selling and administrative expenses (46% variable) 26 Total $129 Talladega pays a selling 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 $7.01 per tire. In addition, Autobahn has made the order conditional on receiving European safety certification. Talladega estimates that this certification would cost $162,184. Required: a Prepare a differential analysis dated July 31 on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. b Determine whether the company should reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors c What is the minimum price per unit that would be financially acceptable to Talladega? Round your answer to two decimal places.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Talladega Tire and Rubber Company has capacity to produce 194,000 tires. Talladega presently produces and sells 134,900 tires for the North American market at a price of $180 per tire. Talladega is evaluating a special order from a European automobile company, Autobahn Motors. Autobahn is offering to buy 19,400 tires for $115.60 per tire. Talladega’s accounting system indicates that the total cost per tire is as follows:


Direct materials	$57
Direct labor	20
Factory overhead (57% variable)	26
Selling and administrative expenses (46% variable)	26
Total	$129

Talladega pays a selling 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 $7.01 per tire. In addition, Autobahn has made the order conditional on receiving European safety certification. Talladega estimates that this certification would cost $162,184.

	Required:
a	Prepare a differential analysis dated July 31 on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.
b	Determine whether the company should reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors
c	What is the minimum price per unit that would be financially acceptable to Talladega? Round your answer to two decimal places.

Labels
Cash flows from investing activities
Costs
Amount Descriptions
Certification costs
Direct labor
Direct materials
Gain on sale of investments
Income (loss)
Loss on sale of investments
Revenues
Shipping costs
Variable factory overhead
Variable selling and administrative expenses

a. Prepare a differential analysis dated July 31 on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for
text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.
Differential Analysis
Reject (Alternative 1) or Accept (Alternative 2) Order
July 31
Differential Effect
Reject Order
Accept Order
on Income
(Alternative 1)
(Alternative 2)
(Alternative 2)
4 (Label)
5
8
10
11

b. Determine whether the company should reject (Alternative 1) or accept (Alternative 2) the special order from Autobahn Motors.
Reject
The company is indifferent since the result is the same regardless of which alternative is chosen.
О Ассеpt
c. What is the minimum price per unit that would be financially acceptable to Talladega? Round your answer to two decimal places.
2$

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