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

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

$ 180,000

Step-by-step 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