Accept Special Order John's Jeans 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/unit. The present selling price is $42/unit. On January 12th of the current year, the company received an offer from Davis Company for 18,000 units of the product at $32 each. Davis 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 John's Jeans. Prepare a differential analysis on whether to reject (alternative 1) or accept (alternative 2) of the Davis order. What is the minimum price per unit that would produce a positive contribution margin?
Reject | Accept | Differential income | |
Revenue | 0 | 18000*32 = 576000 | 576000 |
Variable cost | 0 | 18000*29 = -522000 | -522000 |
Income (loss) | 0 | 54000 | 54000 |
b) Minimum price per unit = More than 29 = 30
Accept Special Order John's Jeans has an annual plant capacity of 65,000 units, and current production...
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