SafeRide, Inc_ Accept or reject the order

SafeRide, Inc. produces
air bag systems that it sells to North American automobile manufacturers.
Although the company has a capacity of 300,000 units per year, it is currently
producing at an annual rate of 180,000 units. SafeRide, Inc. has received an order
from a German manufacturer to purchase 60,000 units at $9.00 each. Budgeted
costs for 180,000 and 240,000 units are as follows:

180,000 Units

240,000 Units

Manufacturing costs

Direct materials

$
450,000

$
600,000

Direct labor

315,000

420,000

Factory overhead

1,215,000

1,260,000

Total

1,980,000

2,280,000

Selling and administrative

765,000

780,000

Total

$
2,745,000

$
3,060,000

Costs per unit

Manufacturing

$
11.00

$
9.50

Selling and administrative

4.25

3.25

Total

$
15.25

$
12.75

Sales to North American manufacturers are priced at $20 per unit, but the sales
manager believes the company should aggressively seek the German business even
if it results in a loss of $3.75 per unit. She believes obtaining this order
would open up several new markets for the company’s product. The general
manager commented that the company cannot tighten its belt to absorb the
$225,000 loss ($3.75 × 60,000) it would incur if the order is accepted.
(a)
Calculate
the net benefit (cost) of accepting the order from the German business.
(b)
Calculate
the net benefit (cost) of accepting the order from the German business,
assuming the company is operating at full capacity.

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