Question

1. Decision on Accepting Additional Business

   Down Home Jeans Co. has an annual plant capacity of 64,600 units, and current production is 46,700 units. Monthly fixed costs are $40,300, 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 Fields Company for 16,700 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 The area of accounting concerned with the effect of alternative courses of action on revenues and costs.differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Fields 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)	$	$	$

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   b. Having unused capacity available is

   • relevant
   • irrelevant
   to this decision. The differential revenue is
   • more
   • less
   than the differential cost. Thus, accepting this additional business will result in a net
   • gain
   • loss
   .

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

Answer 1