Homestead Jeans Co. has an annual plant capacity of 65,000 units, and current production is 45,000 units. Monthly fixed costs are $54,000, and variable costs are $29 per unit. The present selling price is $42 per unit. On November 12 of the current year, the company received an offer from Dawkins Company for 18,000 units of the product at $32 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.

Required:

A.

Prepare a differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Dawkins order. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.

B.

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

C.

What is the minimum price per unit that would produce a positive contribution margin? If required, round your answer to two decimal places.

Labels

Cash flows from operating activities

Costs

Amount Descriptions

Cash payments for merchandise

Cash received from customers

Income (loss)

Revenues

Variable manufacturing costs

Prepare a differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Dawkins order. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.

Differential Analysis

Reject Order (Alternative 1) or Accept Order (Alternative 2)

November 12

1		Reject Order	Accept Order	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
3
4
5
6

will increase operating income.

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 .

What is the minimum price per unit that would produce a positive contribution margin? If required, round your answer to two decimal places.