Question

Product N is normally sold for $21.40 per unit. A special price of $16.10 is offered for the export market. The variable production cost is $11.20 per unit. An additional export tariff of 20% of revenue must be paid for all export products. Assume that there is sufficient capacity for the special order.

Prepare a differential analysis dated March 16 on whether to Reject Order (Alternative 1) or Accept Order (Alternative 2). Round your answers to two decimal places. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
March 16
Reject Order (Alternative 1) Accept Order (Alternative 2) Differential Effect (Alternative 2)
Revenues, per unit
Costs:
Variable manufacturing costs, per unit
Export tariff, per unit
Profit (loss), per unit

Answer 1

The differential analysis suggests that accepting the export order (Alternative 2) would lead to a profit of $8.52 per unit, providing a more favorable financial outcome compared to rejecting the order (Alternative 1).

The differential analysis compares the financial implications of rejecting the order (Alternative 1) and accepting the order (Alternative 2) for Product N at the special export price of $16.10. Given the information provided, the following differential analysis is presented:

Revenues, per unit:

Reject Order (Alternative 1): $21.40

Accept Order (Alternative 2): $16.10

Differential Effect (Alternative 2): -$5.30

Costs:

Variable Manufacturing Costs, per unit: $11.20

Export Tariff, per unit: 20% of Revenue

For Alternative 2: 20% * $16.10 = $3.22

Profit (Loss), per unit:

Reject Order (Alternative 1): $21.40 - $11.20 = $10.20

Accept Order (Alternative 2): $16.10 - $11.20 - $3.22 = $1.68

Differential Effect (Alternative 2): $10.20 - $1.68 = $8.52

In summary, the differential analysis indicates that accepting the export order at the special price would result in a reduction in revenue per unit but would still generate a positive profit after accounting for variable manufacturing costs and export tariffs. The differential effect shows the financial impact favoring Alternative 2 with a profit of $8.52 per unit compared to rejecting the order.