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. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) November 12 Ассept Differential Reject Order Order Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues 576.000 576,000 Costs:
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. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) November 12 Ассept Differential Reject Order Order Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues 576.000 576,000 Costs:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![### Decision-Making in Cost Analysis
#### Feedback Section
**Check My Work**
**a.** Subtract the additional costs from the additional revenues for accepting the order.
**b.** Having unused capacity available is [relevant] to this decision. The differential revenue is [more] than the differential cost. Thus, accepting this additional business will result in a net [profit].
**c.** What is the minimum price per unit that would produce a positive contribution margin? **Round your answer to two decimal places.**
*Answer:* $0.91
---
#### Feedback Section
**Check My Work**
- **b.** What is the effect on capacity? What is the net gain/loss?
- **c.** What are the variable costs per unit?
---
### Understanding the Content
Decision-making in cost analysis often involves determining if accepting an additional order will be profitable. Key considerations include:
- **Additional Revenue vs. Additional Costs:**
- Calculate the difference to assess profitability.
- **Unused Capacity:**
- Evaluating whether unused resources contribute positively to decision making.
- **Minimum Price for Positive Contribution Margin:**
- Ensure that pricing covers variable costs to yield a profit.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff8c879c5-4abd-41e0-a23b-c4f185aff8d4%2F343a7747-d0c0-4e5a-9452-829dfe975c91%2Fe11sntz_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Decision-Making in Cost Analysis
#### Feedback Section
**Check My Work**
**a.** Subtract the additional costs from the additional revenues for accepting the order.
**b.** Having unused capacity available is [relevant] to this decision. The differential revenue is [more] than the differential cost. Thus, accepting this additional business will result in a net [profit].
**c.** What is the minimum price per unit that would produce a positive contribution margin? **Round your answer to two decimal places.**
*Answer:* $0.91
---
#### Feedback Section
**Check My Work**
- **b.** What is the effect on capacity? What is the net gain/loss?
- **c.** What are the variable costs per unit?
---
### Understanding the Content
Decision-making in cost analysis often involves determining if accepting an additional order will be profitable. Key considerations include:
- **Additional Revenue vs. Additional Costs:**
- Calculate the difference to assess profitability.
- **Unused Capacity:**
- Evaluating whether unused resources contribute positively to decision making.
- **Minimum Price for Positive Contribution Margin:**
- Ensure that pricing covers variable costs to yield a profit.
Transcribed Image Text:**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. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
**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** | $0 | $576,000 | $576,000 |
| **Costs:** | | | |
| Variable manufacturing costs | $0 | $522,000 | -$522,000 |
| **Profit (Loss)** | $0 | $54,000 | $54,000 |
- **Revenues** increase by $576,000 if the order is accepted.
- **Variable manufacturing costs** increase by $522,000 if the order is accepted.
- The overall **profit** from accepting the order is $54,000.
This analysis helps determine the financial impact of accepting the additional business from Dawkins Company and the potential profitability increase for Homestead Jeans Co.
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