Down Home Jeans Co. has an annual plant capacity of 66,800 units, and current production is 46,200 units. Monthly fixed costs are $39,100, 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 Fields Company for 16,200 units of the product at $28 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 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 Differential Reject Accept Effect Order Order on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues $ 0 453,600 453,600 Costs: Variable manufacturing costs 0 -518,400 X 518,400 X Income (Loss) 0 -64,800 X $ -64,800 Feedback to this decision. The differential revenue is more than the differential cost. Thus, accepting this additional business will b. Having unused capacity available is relevant result in a net gain c. What is the minimum price per unit that would produce a positive contribution margin? Round your answer to two decimal places. 0 X Differential Analysis for a Discontinued Product A condensed income statement by product line for Crown Beverage Inc. indicated the following for Royal Cola for the past year: Sales $235,500 108,000 Cost of goods sold Gross profit $127,500 145,000 Operating expenses Loss from operations $(17,500) It is estimated that 15% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Since Royal Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued. a. Prepare a differential analysis, dated March 3, to determine whether Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "O". Use a minus sign to indicate a loss. Differential Analysis Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2) January 21 Differential Effect Continue Royal Discontinue Royal on Income Cola (Alternative 1) Cola (Alternative 2) (Alternative 2) Revenues 235,500 0 -235,500 Costs: Variable cost of goods sold -91,800 0 91,800 Variable operating expenses -116,000 0 116,000 Fixed costs -45,200 -45,200 0 Income (Loss) -17,500 -45,200 $ -27,700 Feedback b. Should Star Cola be retained? Explain. Yes As indicated by the differential analysis in part (A), the income would decrease by $ 27,700 if the product is discontinued
