Question

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". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Answer 1

Answer:

The company should accept the offer as it increases the sales revenue by

$ 180,000

Explanation:

Homestead Jeans Co

Differential analysis

November 12

                                    Reject                   Accept             Differential Effects      

                                  (Alternative 1)   (Alternative 2)        (Alternative 2)

Sales Units                     45000                63000                  

                                                       (18,000+ 45,000)

Sales Price Peer Unit           42                          42                              

Sales Revenue             1890,000               2646,000            756,000

Variable Costs               1305,000             1881,000               (-576,000)

                                                        576,000+ 1305,000

Fixed Costs                     54,000                    54,000                     0            

Gross Profit                    531,000                  711,000              180,000

The company should accept the offer as it increases the sales revenue by

$ 180,000