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Decision on accepting additional business Madison Industries Inc. has an annual plant capacity of 800.000 units, and current production is 650,000 units. Monthly fixed costs are $1,200,000 and variable costs are $36 per unit. The present selling price is $50 per unit. The company received an offer from Story Mills Company for 125,000 units of the product at $41 each. Story Mills 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 Madison Industries Inc. a.Prepare a differential analysis report for the proposed sale to Story Mills Company. b.Briefly explain the reason why accepting this additional business will increase operating income. c.What is the minimum price per unit that would produce a contribution margin?

BuyFind

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883
BuyFind

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883

Solutions

Chapter
Section
Chapter 12, Problem 12.12E
Textbook Problem

Decision on accepting additional business
Madison Industries Inc. has an annual plant capacity of 800.000 units, and current production is 650,000 units. Monthly fixed costs are $1,200,000 and variable costs are $36 per unit. The present selling price is $50 per unit. The company received an offer from Story Mills Company for 125,000 units of the product at $41 each. Story Mills 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 Madison Industries Inc.
a.Prepare a differential analysis report for the proposed sale to Story Mills Company.
b.Briefly explain the reason why accepting this additional business will increase operating income.
c.What is the minimum price per unit that would produce a contribution margin?

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Chapter 12 Solutions

Survey of Accounting (Accounting I)
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