Huang Automotive is presently operating at 75% of capacity. The company recently received an offer...
70.2K
Verified Solution
Link Copied!
Question
Accounting
Huang Automotive is presently operating at 75% of capacity. The company recently received an offer from a Korean truck manufacturer to purchase 21,500 units of a power steering system component for $190 per unit. Peter Wu, vice-president of sales, notes that although there will be an additional $2.25 shipping cost for each component, he thinks that accepting the order will get the company's "foot in the door" of an expanding international market. Huang's production and cost information for the last two years for the component are as follows:
192000
units
225,000
uints
direct material costs
$17,280,000
$20,250,000
direct labor costs
5,184,000
6,075,000
overhead costs
21,348,000
23,212,500
selling and administrative costs
7,232,000
7,512,500
total costs
$51,044,000
$57,050,000
total costs per unit
$265.85
$253.56
T.J. Chan, vice-president of engineering, feels that any new market should first show its profitability and that the $190 per unit offer is not only below the regular $270 selling price, but it's below the unit cost of the component. She also points out that there will be additional setup costs of $240,000 and that Huang will have to lease some special equipment for $210,000. Required 1. Using the high-low method to determine cost behavior, what would the expected profit be on the special order (use a negative sign for a loss)?
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!