GPA Calculator Grades-EC02023 MICROECONOMICS ENHANCED 58415 CengageNOWv2 | Onlin

ID: 2534563 • Letter: G

Question

GPA Calculator Grades-EC02023 MICROECONOMICS ENHANCED 58415 CengageNOWv2 | Online teaching and learning resource+ GPA Calculator 25-3 Exercises & Decision on Accepting Additional Business Down Home Jeans Co. has an annual plant capacity of 64,100 units, and current production is 45,400 units. Monthly fixed costs are $40,800, and variable costs are $25 per unit. The present selling price is $38 per unit. On November 12 of the current year, the company received an offer from Fields Company for 15,300 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 dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Fields order. If an amount is zero, enter zero "O". For those boxes in which you must enter subtracted or negative numbers use a minus sign Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) Reject Order Accept Order Effect on Income (Alternative 1) (Altenative 2) (Alternative 2) Costs: Variable manufacturing costs Income (Loss) b. Having unused capacity available is to this decision. The differential revenue is than the differential cost. Thus, accepting this additional business will result in a net 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 2 more Check My Work uses remaining. Previous Next Assignment Score: 0.0% Email Instructor Save and Exit Submit Assignment for Grading

Explanation / Answer

Down Home Jeans Co

Differential Analysis as on November 12

Reject Order (Alternative 1) or Accept Order (Alternative 2)

Reject Order (Alternative 1)

Accept Order (Alternative 2)

Differential Effect on Income (Alternative 2)

Revenues

$428,400

Costs:

Variable costs

$382,500

Income (loss)

$45,900

Explanation: Acceptance of special order with positive contribution would enable the company use the available unused capacity, thereby better absorbing the fixed cost burden. Hence accepting special order by employing unused capacity will allow the company to increase its overall net income.

However, if the company is working at full capacity, then acceptance of special order might result in loss of regular sales and the resulting contribution margin. Hence, availability of unused capacity is RELEVANT to the Accept or Reject decision.

Explanation: Since the variable cost is $25 per unit, any price beyond $25 would make the special order earn positive contribution. Hence, the minimum price per unit to earn a positive contribution margin is a slight increase in variable cost, by $0.01 to become $25.01.