What if the company only pays 210 per unit how does this

Question

Differential analysis involves knowing which costs are relevant, i.e. future costs that vary among alternatives. It is important to know what information to use and not just how to execute the analysis.

Lewis Company (accounting information provided in the prior module) receives an offer to make a new product, called C, for a new customer. The customer wants to buy 1,100 units. Product C has the same cost structure as product B with three exceptions. The new customer is only willing to pay $260 per unit, direct materials costs will decrease by $10 per unit and Lewis does not have to incur any variable selling and administrative expenses.

• Make a list of the expenses and amounts that are relevant for this decision. How much with the sale of this product contribute to the profitability of Lewis?
• What if the company only pays $210 per unit? How does this change the contribution towards profitability?
• If you were the manager, would you accept this order? What considerations, other than financial would enter into your decision?

Answer 1

Analysis all questions and give the best answer. You should read all instructions carefully. Differential study engages knowing that costs are applicable, for example future costs that diverge among alternatives. It is significant to know what information to employ and not just how to perform the analysis. Lewis Company (accounting information provided in the prior module) receives a present to build a new product, said C, for a new customer. The customer desires to buy 1,100 units. Product C has the similar cost structure as product B through three exceptions. The new customer is merely willing to pay $260 per unit, direct substances costs will reduce by $10 per unit and Lewis doesn’t have to incur any variable selling and administrative expenses. Build a list of the expenditures and amounts which are relevant for this decision. How much through the sale of this product add to the profitability of Lewis?