Question

Homestead Jeans Co. has an annual plant capacity of 65,000 units, and current production is 45,000 units. Monthly fixed costs are $54,000, and variable costs are $29 per unit. The present selling price is $42 per unit. On November 12 of the current year, the company received an offer from Dawkins Company for 18,000 units of the product at $32 each. Dawkins 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 Homestead Jeans Co.

a. Prepare a differential analysis on whether to reject or accept the Dawkins order.

b. What is the minimum price per unit that would produce a positive contribution margin?

Answer 1

Answer:

Reject

0

0

0

Accept

(18,000 x 32) difference 576,0000

(18,000x 29) difference522,000

Income 52,400

B. margin?Under target costing, a selling price is first determined based on market demand or competition and then a profit is subtracted. This will result in a target cost. The company must now produce this product at the target cost.