Decision on Accepting Additional Business Western Jeans Co. has an annual plant capacity of 2,000,000 units, and current production is 1,920,000 units. Monthly fixed costs are $400,000, and variable costs are $9 per unit. The
Decision on Accepting Additional Business Western Jeans Co. has an annual plant capacity of 2,000,000 units, and current production is 1,920,000 units. Monthly fixed costs are $400,000, and variable costs are $9 per unit. The
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter11: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 13E
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![Decision on Accepting Additional Business
Western Jeans Co. has an annual plant capacity of 2,000,000
units, and current production is 1,920,000 units. Monthly fixed
costs are $400,000, and variable costs are $9 per unit. The
present selling price is $15 per unit. On July 6 of the current
year, the company received an offer from Childs Company for
50,000 units of the product at $13 each. Childs 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 Western Jeans
Co.
a. Prepare a differential analysis dated July 6 on whether to
reject (Alternative 1) or accept (Alternative 2) the Childs order.
If an amount is zero, enter "0". If required, use a minus sign to
indicate a loss.
Line Item Description
Revenues
Costs:
Differential Analysis
Reject (Alt. 1) or Accept (Alt. 2) Order
July 6
Variable manufacturing costs
Profit (loss)
Reject Order Accept Order Differential Effects
(Alternative 1) (Alternative 2) (Alternative 2)
b. Having unused capacity available is
decision. The differential revenue is
than the
differential cost. Thus, accepting this additional business will
result in a net
to this
c. What is the minimum price per unit that would produce a
positive contribution margin? Round your answer to two
decimal places.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F751eefad-94aa-4662-b76b-aea464c52065%2F03e74f3a-3020-4cd7-b3a1-7843f3f63d53%2Ftcywez_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Decision on Accepting Additional Business
Western Jeans Co. has an annual plant capacity of 2,000,000
units, and current production is 1,920,000 units. Monthly fixed
costs are $400,000, and variable costs are $9 per unit. The
present selling price is $15 per unit. On July 6 of the current
year, the company received an offer from Childs Company for
50,000 units of the product at $13 each. Childs 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 Western Jeans
Co.
a. Prepare a differential analysis dated July 6 on whether to
reject (Alternative 1) or accept (Alternative 2) the Childs order.
If an amount is zero, enter "0". If required, use a minus sign to
indicate a loss.
Line Item Description
Revenues
Costs:
Differential Analysis
Reject (Alt. 1) or Accept (Alt. 2) Order
July 6
Variable manufacturing costs
Profit (loss)
Reject Order Accept Order Differential Effects
(Alternative 1) (Alternative 2) (Alternative 2)
b. Having unused capacity available is
decision. The differential revenue is
than the
differential cost. Thus, accepting this additional business will
result in a net
to this
c. What is the minimum price per unit that would produce a
positive contribution margin? Round your answer to two
decimal places.
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