a. Decision on Accepting Additional Business Country Jeans Co. has an annual pla

Question

a. Decision on Accepting Additional Business Country Jeans Co. has an annual plant capacity of 66,200 units, and current production is 43,100 units. Monthly fixed costs are $38,500, and variable costs are $25 per unit. The present selling price is $32 per unit. On February 2, 2014, the company received an offer from Miller Company for 14,400 units of the product at $27 each. Miller 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 Country Jeans Co. Hide a. Prepare a differential analysis on whether to reject (Alternative 1) or accept (Alternative 2) the Miller 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. What is the minimum price per unit that would produce a positive contribution margin? Round your answer to two decimal places.
$

Explanation / Answer

**fixed cost will be incurred whether offer is accepted or not so it is irrelevant.

b)minimum price per unit that would produce a positive contribution margin = variable manufacturing cost = $ 25 per unit

Alternative 1 Reject Alternative 2 Accept Differential analysis Revenue 0 14400*27 = 388800 388800 less:variable cost 0 14400*25= (360000) (360000) Profit /(loss) 0 28800 28800

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