Brightstone Tire and Rubber Company has capacity to produce 185,500 tires. Brightstone presently produces and sells 127,700 tires for the North American market at a price of $181 per tire. Brightstone is evaluating a special order from a European automobile company, Euro Motors. Euro is offering to buy 21,900 tires for $114.77 per tire. Brightstone’s accounting system indicates that the total cost per tire is as follows:

Direct materials $55

Direct labor 20

Factory overhead (65% variable) 27

Selling and administrative expenses (44% variable) 26

Total $128.00

Brightstone 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 $7.68 per tire. In addition, Euro has made the order conditional on receiving European safety certification. Brightstone estimates that this certification would cost $182,646.

Required:

A. Prepare a differential analysis dated January 21 on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors.

B. Determine whether the company should reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors

Answer rating: 100% (QA)

a Perform Differential Analysis for the giv... View the full answer