Question

# Decision on Accepting Additional Business Homestead Jeans Co. has an annual plant capacity of 65,000 units,...

Homestead Jeans Co. has an annual plant capacity of 65,000 units, and current production is 45,000 units. Monthly fixed costs are \$54,000, and variable costs are \$29 per unit. The present selling price is \$42 per unit. On November 12 of the current year, the company received an offer from Dawkins Company for 18,000 units of the product at \$32 each. Dawkins 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 Homestead Jeans Co.

a. Prepare a differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Dawkins order. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.

 Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) November 12 Reject Order (Alternative 1) Accept Order (Alternative 2) Differential Effects (Alternative 2) Revenues \$ \$ \$ Costs: Variable manufacturing costs Profit (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.

 Answer Differential Analysis - Special order - Homestead Jeans Company Answer A3 Particulars Reject order Accept order Net Income Increase (Decease) Revenues \$                 - \$             5,76,000 \$                      5,76,000 Costs: Variable costs \$                 - \$             5,22,000 \$                      5,22,000 Net Income \$                 - \$                54,000 \$                         54,000 Answer B Accpetance and Reason Accepting additional business will increase operating income. Further there is no change in fixed costs as company is having spare capacity available Answer C Minimum price per unit that would produce a positive contribution margin per unit = Variable cost per unit = \$29 per unit

> It was good but the answer to “C” is \$29.01

Vianney Wed, Dec 15, 2021 4:03 PM

> The answer to “B” is
“relevant” “more” “profit” (in that order)

Vianney Wed, Dec 15, 2021 4:06 PM

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