Decision on Accepting Additional Business

Homestead Jeans Co. has an annual plant capacity of 64,900 units, and current production is 45,300 units. Monthly fixed costs are $38,600, and variable costs are $25 per unit. The present selling price is $32 per unit. On November 12 of the current year, the company received an offer from Dawkins Company for 13,700 units of the product at $29 each. Dawkins 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 Homestead Jeans Co.

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a. Prepare a differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Dawkins order. If an amount is zero, enter "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	$fill in the blank 570faaf76f8e044_1	$fill in the blank 570faaf76f8e044_2	$fill in the blank 570faaf76f8e044_3
Costs:
Variable manufacturing costs	fill in the blank 570faaf76f8e044_4	fill in the blank 570faaf76f8e044_5	fill in the blank 570faaf76f8e044_6
Income (Loss)	$fill in the blank 570faaf76f8e044_7	$fill in the blank 570faaf76f8e044_8	$fill in the blank 570faaf76f8e044_9

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Subtract the additional costs from the additional revenues for accepting the order.

Learning Objective 1.

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b. Having unused capacity available is

relevantirrelevantrelevant

to this decision. The differential revenue is

morelessmore

than the differential cost. Thus, accepting this additional business will result in a net

gainlossgain

.

c. What is the minimum price per unit that would produce a positive contribution margin? Round your answer to two decimal places. $fill in the blank b79c8f05b033000_4

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