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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 $7.00 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
Direct labor
Factory overhead
Selling and administrative
Costs per unit
Manufacturing $11.00 $9.50
Selling and administrative
4.25 3.25
$15.25 $12.75
Sales to North American manufacturers are priced at $25 per unit, but the sales manager believes the
company should aggressively seek the German business even if it results in a loss of $5.75 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 $345,000 loss ($5.75 x
60,000) it would incur if the order is accepted.

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Question A.png

A) Using High-Low method :
Variable cost per unit =
Total cost (High level of activity - Lowe level of activity)
No of units (High level - Low level )
$ 3.060.000 - $ 2.745,000
240.000 - 180.000...

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