Decision on Accepting Additional Business

Homestead Jeans Co. has an annual plant capacity of 64,300 units, and current production is 47,000 units. Monthly fixed costs are $38,800, and variable costs are $25 per unit. The present selling price is $34 per unit. On November 12 of the current year, the company received an offer from Dawkins Company for 15,200 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.

a. Prepare a differential analysis dated November 12 on whether to Reject Order (Alternative 1) or Accept Order (Alternative 2). 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 Effects (Alternative 2)
Revenues	$fill in the blank 36312006206efa3_1	$fill in the blank 36312006206efa3_2	$fill in the blank 36312006206efa3_3
Costs:
Variable manufacturing costs	fill in the blank 36312006206efa3_4	fill in the blank 36312006206efa3_5	fill in the blank 36312006206efa3_6
Profit (loss)	$fill in the blank 36312006206efa3_7	$fill in the blank 36312006206efa3_8	$fill in the blank 36312006206efa3_9

b. Having unused capacity available is

relevantirrelevant

to this decision. The differential revenue is

moreless

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

gainloss

.

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 6fb26ff80fa0027_4