Glide Ride Tire and Rubber Company has capacity to produce 170,000 tires. Glide Ride presently produces and sells 130,000 tires for the North American market at a price of $90 per tire. Glide Ride is evaluating a special order from a European automobile company, Euro Motors. Euro is offering to buy 20,000 tires for $72 per tire. Glide Ride's accounting system indicates that the total cost per tire is as follows:
Direct Materials.............................................................$ 34
Direct Labor.................................................................. 12
Factory Overhead (60% Variable)................................ 20
Selling and Administrative Expenses (35% Variable)... 18
Total............................................................................. $ 84
Glide Ride pays a selling commission equal to 5% 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 $5.00 per tire. In addition, Euro has made the order conditional on receiving European safety certification. Glide Ride estimates that this certification would cost $95,000.
a. Prepare a differential analysis dated May 4, 2012, on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors.getting a little hung up, especially on the selling and administrative expenses