Question: Miramar Tire and Rubber Company has capacity to produce 250 000

Miramar Tire and Rubber Company has capacity to produce 250,000 tires. Miramar presently produces and sells 200,000 tires for the North American market at a price of $40 per tire. Miramar is evaluating a special order from a South American automobile company, Rio Motors. Rio Motors is offering to buy 40,000 tires for $20 per tire. Miramar’s accounting system indicates that the total cost per tire is as follows:
Direct materials .............. $10.00
Direct labor .................. 5.00
Factory overhead (45% variable) ......... 4.00
Selling and administrative expenses (75% variable) . 3.00
Total ................... $22 .00

Miramar pays a selling commission equal to 4% 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 $1.50 per tire. In addition, Rio has made the order conditional on Miramar Tire Company receiving a Brazilian safety certification.
Rio estimates that this certification would cost Miramar Tire $20,000.
a. Prepare a differential analysis report dated August 7, 2012, for the proposed sale to Rio Motors.
b. What is the minimum price per unit that would be financially acceptable to Miramar?

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  • CreatedFebruary 04, 2014
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