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

Question

Decision on Accepting Additional Business

Country Jeans Co. has an annual plant capacity of 66,500 units, and current production is 43,100 units. Monthly fixed costs are $38,900, and variable costs are $25 per unit. The present selling price is $38 per unit. On February 2, 2014, the company received an offer from Miller Company for 14,100 units of the product at $29 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.

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)

$  

$  

$  

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)

$  

$  

$  

What is the minimum price per unit that would produce a positive contribution margin? Round your answer to two decimal places.

Explanation / Answer

Solution :

Reject Order (Alternative 1)

Accept Order (Alternative 2)

Differential Effect on Income (Alternative 2)

Revenues

1637800

2046700

408900

(43100*38)

(43100*38)+(14100*29)

Costs:

Variable manufacturing costs

1077500

1430000

352500

(43100*25)

(43100+14100)*25

Income (Loss)

560300

616700

56400

minimum price per unit should be atleast $ 25 that would produce a positive contribution margin

Reject Order (Alternative 1)

Accept Order (Alternative 2)

Differential Effect on Income (Alternative 2)

Revenues

1637800

2046700

408900

(43100*38)

(43100*38)+(14100*29)

Costs:

Variable manufacturing costs

1077500

1430000

352500

(43100*25)

(43100+14100)*25

Income (Loss)

560300

616700

56400

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