Down Home Jeans Co. has an annual plant capacity of 64,700 units, and current production is 43,400 units. Monthly fixed costs are $39,500, and variable costs are $25 per unit. The present selling price is $33 per unit. On February 2, 2014, the company received an offer from Fields Company for 15,600 units of the product at $29 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.Prepareadifferential analysis on whether to reject (Alternative 1) or accept (Alternative 2) the Fields order. If an amount is zero, enter zero “0”
b.Having unused capacity available is Select
relevant
irrelevant
to this decision. The differential revenue is Select
more
less
than the differential cost. Thus, accepting this additional business will result in a net Select
gain
loss
.
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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