Down Home Jeans Co. has an annual plant capacity of 67,000 units, and current pr
ID: 2468500 • Letter: D
Question
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 units. 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 foreign country under its own brand name. The additonal business is not expected to affect the domestic selling price or quanitiy 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. B) Having unsued capacity avalable is ( Y/N) to theis decision, the differential revenue is (Y/N) than the differenital cost. Thus, accepting this additional business will result in a net ? C) What is the minium price per unit that would produce a positive contribution maring? Round your answer to two decimal places.
Explanation / Answer
a.
Reject the offer
Accept the offer
Differential analysis
Units sold
$ 46,000.00
$ 61,100.00
$ 15,100.00
Sales revenue
(46,000 units * $36)
$ 1,656,000.00
(15,100 units * $29)
$ 437,900.00
(46,000 units * $36)
$ 1,656,000.00
$ 1,656,000.00
$ 2,093,900.00
$ 437,900.00
Variable costs
(46,000 units * $25)
$ 1,150,000.00
(61,100 units * $25)
$ 1,527,500.00
$ 377,500.00
Contribution margin
$ 506,000.00
$ 566,400.00
$ 60,400.00
Fixed costs
($40,000 * 12)
$ 480,000.00
($40,000 * 12)
$ 480,000.00
$ 0.00
Net income
$ 26,000.00
$ 86,400.00
$ 60,400.00
c.
Minimum selling price to produce a positive contribution margin = Variable cost = $25
Any price above $25 shall produce a positive contribution margin
Reject the offer
Accept the offer
Differential analysis
Units sold
$ 46,000.00
$ 61,100.00
$ 15,100.00
Sales revenue
(46,000 units * $36)
$ 1,656,000.00
(15,100 units * $29)
$ 437,900.00
(46,000 units * $36)
$ 1,656,000.00
$ 1,656,000.00
$ 2,093,900.00
$ 437,900.00
Variable costs
(46,000 units * $25)
$ 1,150,000.00
(61,100 units * $25)
$ 1,527,500.00
$ 377,500.00
Contribution margin
$ 506,000.00
$ 566,400.00
$ 60,400.00
Fixed costs
($40,000 * 12)
$ 480,000.00
($40,000 * 12)
$ 480,000.00
$ 0.00
Net income
$ 26,000.00
$ 86,400.00
$ 60,400.00
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