Decision on Accepting Additional BusinessDown Home Jeans Co. has an annual plant capacity of 63,500 units, and current production is 43,600 units. Monthly fixed costs are $41,100, and variable costs are $25 perunit. The present selling price is $35 per unit. On November 12 of the current year, the company received an offer from Fields Company for 14,300 units of the product at $27each. Fields 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 orquantity of sales of Down Home Jeans Co.a. Prepare a differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Fields order. If an amount is zero, enter zero "0". Forthose boxes in which you must enter subtracted or negative numbers use a minus sign.Differential AnalysisReject Order (Alt. 1) or Accept Order (Alt. 2)November 12DifferentialEffectRejectOrder(Alternative 1) (Alternative 2)AcceptOrderon Income(Alternative 2)RevenuesCosts:Variable manufacturing costsIncome (Loss)to this decision. The differential revenue isthan the differential cost. Thus, accepting thisb. Having unused capacity available isadditional business will result in a netrelevantce a positive contribution margin? Round your answer to two decimal places.c. What is the minimum price per unit thatirrelevant

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Asked Nov 5, 2019
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Decision on Accepting Additional Business
Down Home Jeans Co. has an annual plant capacity of 63,500 units, and current production is 43,600 units. Monthly fixed costs are $41,100, and variable costs are $25 per
unit. The present selling price is $35 per unit. On November 12 of the current year, the company received an offer from Fields Company for 14,300 units of the product at $27
each. Fields 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 Down Home Jeans Co.
a. Prepare a differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Fields order. If an amount is zero, enter zero "0". For
those boxes in which you must enter subtracted or negative numbers use a minus sign.
Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
November 12
Differential
Effect
Reject
Order
(Alternative 1) (Alternative 2)
Accept
Order
on Income
(Alternative 2)
Revenues
Costs:
Variable manufacturing costs
Income (Loss)
to this decision. The differential revenue is
than the differential cost. Thus, accepting this
b. Having unused capacity available is
additional business will result in a net
relevant
ce a positive contribution margin? Round your answer to two decimal places.
c. What is the minimum price per unit that
irrelevant
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Decision on Accepting Additional Business Down Home Jeans Co. has an annual plant capacity of 63,500 units, and current production is 43,600 units. Monthly fixed costs are $41,100, and variable costs are $25 per unit. The present selling price is $35 per unit. On November 12 of the current year, the company received an offer from Fields Company for 14,300 units of the product at $27 each. Fields 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 Down Home Jeans Co. a. Prepare a differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Fields order. If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) November 12 Differential Effect Reject Order (Alternative 1) (Alternative 2) Accept Order on Income (Alternative 2) Revenues Costs: Variable manufacturing costs Income (Loss) to this decision. The differential revenue is than the differential cost. Thus, accepting this b. Having unused capacity available is additional business will result in a net relevant ce a positive contribution margin? Round your answer to two decimal places. c. What is the minimum price per unit that irrelevant

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Expert Answer

Step 1

A technique which is used when the decision regarding choosing one of the alternatives is to be taken on the basis changes in the revenue, costs and profit instead of preparing a separate income statement for each alternative is called as differential analysis.

Step 2

It would be profitable for the company as well as advisable to accept the order. The reason being, by accepting the order the company can earn $28,500 more.

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Differential analysis Reject order (Alt.l) or Accept order (Alt.2) November 12 Reject order Accept order Differential effect (Alternative 1) (Alternative 2) on income (Alternative 2) 43,600 units 43,600 units 14,300 units $1,912,000 Revenues Costs Variable manufacturingcosts Income (Loss) $386,000 $1,526,000 (S1,090,000) ($1,447,500) $357,500 $28,500 $436,000 $464,500

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Step 3

It is relevant to use the unused capacity. In comparison to the differential cost, different...

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