Question 24.6: Product D is normally sold for $4.40 per unit. A special pri...

Financial and Managerial Accounting

Product D is normally sold for $4.40 per unit. A special price of $3.60 is offered for the export market. The variable production cost is $3.00 per unit. An additional export tariff of 10% of revenue must be paid for all export products. Assume there is sufficient capacity for the special order. Prepare a differential analysis dated January 14, 2014, on whether to reject (Alternative 1) or accept (Alternative 2) the special order.

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Differential Analysis Reject Order (Alternative 1) or Accept Order (Alternative 2) January 14, 2014
	Reject Order (Alternative 1)	Accept Order (Alternative 2)	Differential Effect on Income (Alternative 2)
Per unit:
Revenues ……………………………………………………	$0	$3.60	$3.60
Costs:
Variable manufacturing costs ………………………..	$0	–$3.00	–$3.00
Export tariff …………………………………………….	0	–0.36*	–0.36
Total costs……………………………………………….	$0	–$3.36	–$3.36
Income (loss) ……………………………………………….	$\underline{\underline{\$ \ 0}}$	$\underline{\underline{\$ \ 0.24}}$	$\underline{\underline{\$ \ 0.24}}$
*$3.60 × 10%

The special order should be accepted.

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