Decision on Accepting Additional Business Down Home Jeans Co. has an annual plan

Question

Decision on Accepting Additional Business

Down Home Jeans Co. has an annual plant capacity of 63,100 units, and current production is 44,200 units. Monthly fixed costs are $38,100, and variable costs are $25 per unit. The present selling price is $36 per unit. On February 2, 2014, the company received an offer from Fields Company for 14,900 units of the product at $29 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

Correct 8 of Item 1

Correct 9 of Item 1

Correct 10 of Item 1

Costs:

Variable manufacturing costs

Correct 13 of Item 1

Correct 14 of Item 1

Correct 15 of Item 1

Income (Loss)

Correct 17 of Item 1

Correct 18 of Item 1

Correct 19 of Item 1

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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

$

Correct 8 of Item 1

$

Correct 9 of Item 1

$

Correct 10 of Item 1

Costs:

Variable manufacturing costs

Correct 13 of Item 1

Correct 14 of Item 1

Correct 15 of Item 1

Income (Loss)

$

Correct 17 of Item 1

$

Correct 18 of Item 1

$

Correct 19 of Item 1

Explanation / Answer

Differential Analysis Particulars Reject Order Accept Order Diff Effect on Income Units Reject - 44200 , Accept 44200+14900              44,200.00              59,100.00                             14,900.00 Revenues Reject 44200*36 Accept 44200*36 + 14900*29        1,591,200.00        2,023,300.00                           432,100.00 Costs: Variable Manufacturing Costs Reject 44200*25 Accept 59100*25        1,105,000.00        1,477,500.00                           372,500.00 Income (Loss) = Sales - Costs            486,200.00            545,800.00                             59,600.00

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