Question

Decision on Accepting Additional Business

Country Jeans Co. has an annual plant capacity of 65,600 units, and current production is 44,900 units. Monthly fixed costs are $41,400, and variable costs are $25 per unit. The present selling price is $35 per unit. On November 12 of the current year, the company received an offer from Miller Company for 16,700 units of the product at $26 each. Miller 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 Country Jeans Co.

a. Prepare a differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Miller order. If an amount is zero, enter zero "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)	$	$	$

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 Work2 more Check My Work uses remaining.

Answer 1

a.

Differential Analysis
November 12
	Reject Order (Alternative 1)	Accept Order (Alternative 2)	Differential Effect on Income (Alternative 2)
Units	44900	61600	16700
Revenues	$1,571,500	$2,005,700	$434,200
Costs:
Variable manufacturing costs @ $25 per unit	1,122,500	1,540,000	417,500
Income (Loss)	$449,000	$465,700	$16,700

b. Co. should accept this order as the net income of the company will increase by $16,700.

c. Minimum price per unit that would produce a positive contribution margin would be $25, if the price goes down than this it will give a negative contribution margin.

answered by: anonymous