Down Home Jeans Co. has an annual plant capacity of 65,000 units, and current production is 45,000

Question:

Down Home Jeans Co. has an annual plant capacity of 65,000 units, and current production is 45,000 units. Monthly fixed costs are $40,000, and variable costs are $22 per unit. The present selling price is $35 per unit. On March 18, 2010, the company received an offer from Fields Company for 18,000 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 differential analysis report for the proposed sale to Fields Company.

(b) Briefly explain the reason why accepting this additional business will increase operating income.

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...