Down Home Jeans Co. has an annual plant capacity of 63,000 units, and current pr

Question

Down Home Jeans Co. has an annual plant capacity of 63,000 units, and current production is 46,800 units. Monthly fixed costs are $40,400, and variable costs are $25 per unit. The present selling price is $37 per unit. On February 2, 2014, the company received an offer from Fields Company for 14,700 units of the product at $29 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".

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. Having unused capacity available is SelectrelevantirrelevantCorrect 1 of Item 2 to this decision. The differential revenue is SelectmorelessCorrect 2 of Item 2 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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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".

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)

$  

$  

$  

Explanation / Answer

a)

b. Having unused capacity available is relevant to this decision. The differential revenue is more than the differential cost. Thus, accepting this additional business will result in a net gain.

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

Minimum price per unit = Variable cost

Minimum price per unit = $ 25

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 0 426300 426300 Costs: Variable manufacturing costs 0 367500 -367500 Income (Loss) 0 58800 58800

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