Decision on accepting additional businessHomestead Jeans Co. has an annual plant capacity of 65.000 units, andcurrent production is 45,000 units. Monthly fixed costs are $54,000, andvariable 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 fromDawkins Company for 18,000 units of the product at $32 each. DawkinsCompany will market the units in a foreign country under its own brandname. The additional business is not expected to affect the domesticselling price or quantity of sales of Homestead Jeans Co. a. Prepare a differential analysis dated November 12 on whether to reject(Alternative 1) or accept (Alternative 2) the Dawkins order.b. Briefly explain why accepting this additional business will increase operating income.c. What is the minimum price per unit that would produce a positivecontribution margin?
Decision on accepting additional business
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.
a. Prepare a differential analysis dated November 12 on whether to reject
(Alternative 1) or accept (Alternative 2) the Dawkins order.
b. Briefly explain why accepting this additional business will increase operating income.
c. What is the minimum price per unit that would produce a positive
contribution margin?
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