Question 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. Feedback a. Follow Exhibit 11 in the text. Subtract the additional costs from the additional revenues. b. Madison Inc. should: accept this additional business since the differential revenue is greater than the differential cost per unit. c. What is the minimum price per unit that would produce a contribution margin? Round your answer to the nearest cent. $ Feedback Feedback Madison Industries Inc. Sell to Story Mills Company Differential Analysis Report Differential revenue from accepting the offer: Revenue from sale of additional units $ Differential cost of accepting the offer: Variable costs from sale of additional units Differential income from accepting the offer $
Question
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.
Feedback
a. Follow Exhibit 11 in the text. Subtract the additional costs from the additional revenues.
b. Madison Inc. should:
accept this additional business since the differential revenue is greater than the differential cost per unit.
c. What is the minimum price per unit that would produce a contribution margin? Round your answer to the nearest cent.
$
Feedback
Feedback
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Madison Industries Inc. |
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Sell to Story Mills Company |
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Differential Analysis Report |
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Differential revenue from accepting the offer: |
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Revenue from sale of additional units |
$ |
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Differential cost of accepting the offer: |
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Variable costs from sale of additional units |
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Differential income from accepting the offer |
$ |
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