Question

Decision on Accepting Additional Business Homestead Jeans Co. has an annual plant capacity of 64,700 units, and current production is 45,600 units. Monthly fixed costs are $39,300, and variable costs are $25 per unit. The present selling price is $37 per unit. On November 12 of the current year, the company received an offer from Dawkins Company for 15,400 units of the product at $28 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". 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) November 12 Reject Order (Alternative 1) Accept Order (Alternative 2) Differential Effect on Income (Alternative 2) Revenues Costs: Variable manufacturing costs Income (Loss) to this decision, The differential revenue is than the b. Having unused capacity available is differential cost. Thus, accepting this additional business will result in a net

Answer 1

XHomestead Jeans CO. has an annual Differential Analysis Relect orde CAlt ) 0ACcepi des (Alt 2) November 12 Relect ordes CAItenative ) ACcePt orde CAIemative 2) DIfFerenHol ECfecon Tnome (AI teinative 2 Revenue B431200 431200 Costs vanable manuf cost $0 $ 385000 F 38S000 Income CLOSS) $46206 46200 Revenue 15400 Unit x 28 B43/ 200 COst 15400 unit x 25 (variable cost) F 385000 HOviy unused capacity available is The only rost fhOt would be added is vanable cost of E 2S Pes Onit to this de cision The diffeentiol evenue is 9ea tes than the differontiay cast thus accepting the addftional business aoillesu1 n a mel galn of s46200 (C) Any selliag Parice above & 2s (variable cost Pes Unlt) POSIIVE contanbutton magn 25.0