CengageNOWv2 Online teaching and resource from Cengage Lear

CengageNOWv2 | Online teaching and resource from Cengage Learning Decision on Accepting Additional busines received an offer from Fields Compeny for 14,300 unts of the product at $28 each. ields Company will market the units in a toreign counery under is own brand name. The edditional b quanbity of sales of Down Home Jeans Co prodution is 45,700 units. Monenly fiwed cests are $39,200, and varable coues ane $25 per unit The present seiling price is 537 per unit. On February 2 the company business is not expected to affect the domestic seling price or Home Jeans Co Revenues maufaecturing to this decision The b. Having unused c what is the minimum price per unit that would produce a pesitive contriuben mgn?oundur nser to ta decimal plce capacity avelable is than the differencial cost. Thus, accepting this additional business a resut inat

Solution

Reject order Accept order Differential effect on income Revenues 0 400400 400400 Costs: Variable manufacturing costs 0 -357500 -357500 Income (loss) 0 42900 42900 2 Having unused capacity available is relevant to this decision. The differential revenue is more than the differential cost. Thus, accepting this additional business will result in a net gain 3 Minimum price per unit $25.01