Question

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 order. Prepare a differential analysis dated March 16 on whether to reject (Alternative 1) or accept (Alternative 2) the special order. 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

Answer 1

normal price $9.60 per unit

special order price $7.20 per unit

variable production costs = $5.00 per unit

additional export tariff = $7.20 x 15% = $1.08

Differential analysis (March 16)

Not sell Sell Effect on income (sell)

Revenue per unit $0.00 $7.20 $7.20

- variable prod. costs ($0.00) ($5.00) ($5.00)

- variable export tariff ($0.00) ($1.08) ($1.08)

Income per unit $0.00 $1.12 $1.12

A differential analysis only considers additional revenues or costs generated by a specific project or special order.