Question

Goshford Company produces a single product and has capacity to produce 130.000 units per month. Costs to produce its current sales of 104,000 units follow. The regular selling price of the product is $130 per unit. Management is approached by a new customer who wants to purchase 26,000 units of the product for $79.20 per unit. If the order is accepted, there will be no additional fixed manufacturing overhead and no additional fixed selling and administrative expenses. The customer is not in the company's regular selling territory, so there will be a $720 per unit shipping expense in addition to the regular variable selling and administrative expenses Per Unit $12.50 15. 12.00 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses Totals Costs at 104,000 units $1,300,000 1,560,000 1,248.000 1,820,000 1,672,000 1.352.000 $9,152,000 17.50 18.00 13.00 $8.8. Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $79.20 per unit. Determine whether management should accept or reject the new business Complete this question by entering your answers in the tabs below. Net Income Accept or Reject Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $79.20 per unit. Normal Volume Additional Volume Combined Total $ 13,520,000 $ 13,520,000 Costs and expenses Direct materials Direct labor Variable manufacturing overhead Fored manufacturing overhead Variable selling and admin exp Ford selling and admin emp 1,300,000 1,560,000 1248,000 1,820.000 325,000 390,000 312,000 1.625 000 1,950,000 1,560,000 1,820 000

Answer 1

Solution: Normal Volume Additional Volume* Combined Total 13,520,000 2059200 15,579,200 1.625.000 1,950,000 Sales Costs and expenses Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable Selling and Adm. expenses Fixed Selling and Adm. expenses 1,300,000 1,560,000 1,248,000 1,820,000 1,872,000 1,352,000 325000 390000 312000 ol 655200 1,820,000 2,527,200 1,352,000 1 Total costs and expenses 9,152,000 1,682,200 10,834,200 Net income/(loss) 4,368,000 377,000 4,745,000 The company should accept the offer Normal Volume Additional Volume* 104000*130 26000*79.2 Sales Costs and expenses Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable Selling and Adm. expenses Fixed Selling and Adm. expenses 1,300,000 26000*12.5 1,560,000/26000*15 1,248,000/26000*12 1,820,000 1,872,000 26000*(18+7.2) 1,352,000