Question

Goshford Company produces a single product and has capacity to produce 150,000 units per month. Costs to produce its current sales of 120,000 units follow. The regular selling price of the product is $112 per unit. Management is approached by a new customer who wants to purchase 30,000 units of the product for $80.10 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 $5.40 per unit shipping expense in addition to the regular variable selling and administrative expenses. Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses Totals Per Unit $12.50 15.00 13.00 17.50 18.00 13.00 $89.00 Costs at 120,000 Units $ 1,500,000 1,800,000 1,560,000 2,100,000 2,160,000 1,560,000 $10,680,000 Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $80.10 per unit. Normal Volume Additional Volume Combined Total Costs and expenses:

Answer 1

particular	normal volume	additional volume	combined total
sale	1,34,40,000	26,43,000	1,60,83,000
less: variable cost:
direct material	15,00,000	3,75,000	18,75,000
direct labour	18,00,000	4,50,000	22,50,000
variable manufacturing overhead	15,60,000	3,90,000	19,50,000
variable selling expense	21,60,000	7,02,000	28,62,000
contribution margin	64,20,000	7,26,000	71,46,000
fixed cost:
manufacturing overhead	21,00,000	-	21,00,000
selling and admin expense	15,60,000	-	15,60,000
net income	27,60,000	7,26,000	34,86,000

Management should accept the new business