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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:

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-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-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.
**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.
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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