Decision on Accepting Additional Business Down Home Jeans Co. has an annual plan
ID: 2418304 • Letter: D
Question
Decision on Accepting Additional Business
Down Home Jeans Co. has an annual plant capacity of 66,100 units, and current production is 46,600 units. Monthly fixed costs are $41,900, and variable costs are $25 per unit. The present selling price is $33 per unit. On February 2, 2014, the company received an offer from Fields Company for 16,700 units of the product at $28 each. Fields Company will market the units in a foreign country under its own brand name. The additional business is not expected to affect the domestic selling price or quantity of sales of Down Home Jeans Co.
a. Prepare a differential analysis on whether to reject (Alternative 1) or accept (Alternative 2) the Fields order. If an amount is zero, enter zero "0".
Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
February 2, 2014
Reject Order (Alternative 1)
Accept Order (Alternative 2)
Differential Effect on Income (Alternative 2)
Revenues
$
$
$
Costs:
Variable manufacturing costs
Income (Loss)
$
$
$
b. Having unused capacity available is
to this decision. The differential revenue is than the differential cost. Thus, accepting this additional business will result in a net
.
c. What is the minimum price per unit that would produce a positive contribution margin? Round your answer to two decimal places.
$
Check My Work (2 remaining)
Hidea. Prepare a differential analysis on whether to reject (Alternative 1) or accept (Alternative 2) the Fields order. If an amount is zero, enter zero "0".
Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
February 2, 2014
Reject Order (Alternative 1)
Accept Order (Alternative 2)
Differential Effect on Income (Alternative 2)
Revenues
$
$
$
Costs:
Variable manufacturing costs
Income (Loss)
$
$
$
Explanation / Answer
Reject Order
Particulars
Domestic
Export
Total
Sales In Units
46,600
46,600
Sales Price
33
33
Less Variable Costs:
25
25
Contribution Per Unit
8
8
Total contribution
372,800
372,800
Less Fixed Cost
41,900
41,900
Net Operating Income
330,900
330,900
Accept Order
Particulars
Domestic
Export
Total
Sales In Units
46,600
16,700
63,300
Sales Price
33
28
Less Variable Costs:
25
25
Contribution Per Unit
8
3
Total contribution
372,800
50,100
422,900
Less Fixed Cost
41,900
-
41,900
Net Operating Income
330,900
50,100
381,000
Particulars
Reject Order
Accept Order
Differential effect on income
Revenue
1,537,800
2,005,400
467,600
Costs:
Variable Manufacturing Cost
1,165,000
1,582,500
417,500
Income
372,800
422,900
50,100
Minimum price should be 25
Reject Order
Particulars
Domestic
Export
Total
Sales In Units
46,600
46,600
Sales Price
33
33
Less Variable Costs:
25
25
Contribution Per Unit
8
8
Total contribution
372,800
372,800
Less Fixed Cost
41,900
41,900
Net Operating Income
330,900
330,900
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