Question

Farrow Co. expects to sell 500,000 units of its product in the next period with the following results $7,500,000 Sales (500,0
Net income $1.965.000 The company has an opportunity to sell 50,000 additional units at $13 per unit. The additional sales wo
Complete this question by entering your answers in the tabs below. Net Income Accept or Reject Should the company accept or r
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Answer #1
Normal Volume Additional Volume Combined Total
Sales 7500000 650000 8150000
Costs and expenses:
Direct materials 1000000 100000 1100000
Direct labor 2000000 200000 2200000
Overhead 500000 75000 575000
Selling expenses 750000 0 750000
Administrative expenses 1285000 215000 1500000
Total costs and expenses 5535000 590000 6125000
Incremental income (loss) from new business 1965000 60000 2025000
The company should accept the offer
Workings:
Additional Volume
Sales 650000 =50000*13
Costs and expenses:
Direct materials 100000 =1000000/500000*50000
Direct labor 200000 =2000000/500000*50000
Overhead 75000 =500000*15%
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