Decision on Accepting Additional Business
Down Home Jeans Co. has an annual plant capacity of 66,400 units, and current production is 46,800 units. Monthly fixed costs are $38,800, and variable costs are $25 per unit. The present selling price is $35 per unit. On February 2, 2014, the company received an offer from Fields Company for 13,000 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".
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Reject Order (Alt. 1) or Accept Order (Alt. 2)
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Reject Order (Alternative 1)
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Accept Order (Alternative 2)
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Differential Effect on Income (Alternative 2)
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Variable manufacturing costs
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b. Having unused capacity available is SelectrelevantirrelevantCorrect 1 of Item 2Â Â to this decision. The differential revenue is SelectmorelessCorrect 2 of Item 2Â Â than the differential cost. Thus, accepting this additional business will result in a net SelectgainlossCorrect 3 of Item 2 .
c. What is the minimum price per unit that would produce a positive contribution margin? Round your answer to two decimal places.
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Answers
Status NEW
Posted 22 Nov 2017 10:11 PM
My Price 9.00
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