Autoliv produces air bag systems that it sells to automobile manufacturers throughout the world. Assume the company has a capacity of 50 million units per year, it is currently producing at an annual rate of 40 million units. Autoliv has received an order from a Japanese manufacturer to purchase 100,000 units at $65 each. Budgeted costs for 40 million and 45 million units are as follows: (in thousands, except costs per unit) 40 Million Units 45 Million Units
Manufacturing costs
Direct materials $ 560,000 $ 630,000
Direct labor 220,000 247,500
Factory overhead 1,780,000 1,822,500
Total 2,560,000 2,700,000
Selling and administrative 1,120,000 1,125,000
Total $ 3,680,000 $ 3,825,000
Costs per unit
Manufacturing $ 64.00 $ 60.00
Selling and administrative 28.00 25.00
Total $ 92.00 $ 85.00
Sales to auto manufacturers are priced at $120 per unit, but the sales manager believes the company should aggressively seek the Japanese business even if it results in a loss of $20 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 $2,000,000 loss ($20 × 100,000) it would incur if the order is accepted.
(a) Determine the financial implications of accepting the order. (Hint: Use the high-low method to determine variable costs per unit.)
Accepting the offer will Answerdecreaseincrease
profits by $
(b) How would your analysis differ if the company were operating at capacity? Determine the advantage or disadvantage of accepting the order under full-capacity circumstances.

Fred smithers, a recent college graduate decided to open his own portable juice bar, smithers smoothies, to wheel around newport beach. you, a trusted friend of fred, are a business major that has also recently graduated and agreed to handle the books for a while to get some practical experience and have a favor that you can ask of fred in the future. given the following five transactions concerning the new venture, prepare the necessary journal entries for the transactions, post the journal entries to appropriate t accounts and prepare a trial balance as of the end of the month in order to answer to the necessary may 2: fred invests $12,000 of his own money to start the new company. this money was obtained from a part-time job working at a legal firm while he was in school. may 3: fred spent $5,100 cash to purchase a refrigerated trailer that he can pull behind his car and set up at the beach. under your advice, fred agrees to place the new asset under an account called "equipment." may 6: fred bought $640 of supplies on account from the flav-o-rite confectioners company. because they will last longer than a single accounting period fred agrees to record them as, "supplies" as per your suggestion. may 13: fred sat on the beach for six hours without a single sale and was feeling very down. right before he left, however, a plumber escorting his family reunion along the beach stopped by his stand and bought $800 worth of smoothies for the entire family. under your advice, fred agrees to call this cash revenue, "sales." may 15: excited about his new venture, fred withdraws $350 from the company to take his girlfriend out to dinner. what would be the balance in the cash account at the end of the period following the posting of all the transactions?