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 67,000 units, and current production is 46,000 units. Monthly fixed costs are $40,000, 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 15,100 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. Hide Hint(s) 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 Selectrelevantirrelevant to this decision. The differential revenue is Selectmoreless than the differential cost. Thus, accepting this additional business will result in a net Selectgainloss. 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 (1 remaining) Icon Key Icon Key Previous Question 6 of 10 Next Exercise 25-13 (Algorithmic) Cengage Learning Cengage Technical Support

Explanation / Answer

Annual capacity 67000 current prod 46000 excess capacity 21000 Monthly fixed cost 40000 present selling price 36 variable cost 25 Order received 15100 at price 29 contribution 4 (29-25) total add contribution 60400 since the add order is within the excess capacity and it results in add contribution of 60400 it must be accepted Income would increase by the amount of additional contribution 60400 differential revenue is more than differential cost it will result in net gain minium price for postivie contribution is 26 (amt in excess of variable cost)

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