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Decision on Accepting Additional Business Western Jeans Co. has an annual plant capacity of 2,000,000 units, and current production is 1,920,000 units. Monthly fixed costs are $400,000, and variable costs are $9 per unit. The

Decision on Accepting Additional Business Western Jeans Co. has an annual plant capacity of 2,000,000 units, and current production is 1,920,000 units. Monthly fixed costs are $400,000, and variable costs are $9 per unit. The

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Decision on Accepting Additional Business Western Jeans Co. has an annual plant capacity of 2,000,000 units, and current production is 1,920,000 units. Monthly fixed costs are $400,000, and variable costs are $9 per unit. The present selling price is $15 per unit. On July 6 of the current year, the company received an offer from Childs Company for 50,000 units of the product at $13 each. Childs 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 Western Jeans Co. a. Prepare a differential analysis dated July 6 on whether to reject (Alternative 1) or accept (Alternative 2) the Childs order. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Line Item Description Revenues Costs: Differential Analysis Reject (Alt. 1) or Accept (Alt. 2) Order July 6 Variable manufacturing costs Profit (loss) Reject Order Accept Order Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) b. Having unused capacity available is decision. The differential revenue is than the differential cost. Thus, accepting this additional business will result in a net to this c. What is the minimum price per unit that would produce a positive contribution margin? Round your answer to two decimal places.
Transcribed Image Text:Decision on Accepting Additional Business Western Jeans Co. has an annual plant capacity of 2,000,000 units, and current production is 1,920,000 units. Monthly fixed costs are $400,000, and variable costs are $9 per unit. The present selling price is $15 per unit. On July 6 of the current year, the company received an offer from Childs Company for 50,000 units of the product at $13 each. Childs 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 Western Jeans Co. a. Prepare a differential analysis dated July 6 on whether to reject (Alternative 1) or accept (Alternative 2) the Childs order. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Line Item Description Revenues Costs: Differential Analysis Reject (Alt. 1) or Accept (Alt. 2) Order July 6 Variable manufacturing costs Profit (loss) Reject Order Accept Order Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) b. Having unused capacity available is decision. The differential revenue is than the differential cost. Thus, accepting this additional business will result in a net to this c. What is the minimum price per unit that would produce a positive contribution margin? Round your answer to two decimal places.
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