Question

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:

Relevant Revenue = $576,000

Relevant Cost = $522,000

Explanation:

As per the data given in the question,

Variable cost = $29 per unit

Company received order of = 18,000 units

Cost of each product = $32

So

Only Relevant Revenue is the revenue from special order = Cost × units

= $32 × 18,000

= $576,000

Only Relevant Cost is the cost from special order = Variable cost × units

= $29 × 18,000

= $522,000

So,

                    Reject order              Accept order                Differential

Revenues            0                        $576,000                       $576,000

Cost :

Variable

manufacturing    0                        $522,000                       -$522,000

Income(loss)       0                        $54000                           $54000