Decision on Accepting Additional Business

Down Home Jeans Co. has an annual plant capacity of 65,200 units, and current production is 46,300 units. Monthly fixed costs are $39,600, and variable costs are $25 per unit. The present selling price is $38 per unit. On February 2, 2014, the company received an offer from Fields Company for 15,300 units of the product at $26 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.

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a.Prepare a differential analysis on whether to reject (Alternative 1) or accept (Alternative 2) the Fields order. If an amount is zero, enter zero "0".

Differential Analysis

Reject Order (Alt. 1) or Accept Order (Alt. 2)

February 2, 2014

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.

$