Question

Goshford Company produces a single product and has capacity to produce 100,000 units per month. Costs to produce its current sales of 80,000 units follow. The regular selling price of the product is $100 per unit Management is approached by a new customer who wants to purchase 20,000 units of the product for $75.00 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 $5.00 per unit shipping expense in addition to the regular variable selling and administrative expenses Costs at 80,000 Per Unit $12.50 Units $ Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses 1,000,000 1,200,000 800,000 1,400,ee0 15.00 10.e0 17.50 14.00 1,120,000 13.00 1,040,000 Totals $82.00 $ 6,560,00e Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $75.00 per unit. Determine whether management should accept or reject the new business Complete this question by entering your answers in the tabs below Accept or Reject Net Income Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $75.00 per unit. Normal Volume Addicional Volume Combined Total 0 Costs and expenses 0 0

Answer 1

	Normal volume	Additional volume	Combined Total
Sales	8000000	1500000	9500000
Costs and expenses:
Direct materials	1000000	250000	1250000
Direct labor	1200000	300000	1500000
Variable manufacturing overhead	800000	200000	1000000
Fixed manufacturing overhead	1400000	0	1400000
Variable selling and admin expenses	1120000	380000	1500000
Fixed selling and admin expenses	1040000	0	1040000
Total costs and expenses	6560000	1130000	7690000
Net income(loss)	1440000	370000	1810000
Accept the offer
Workings:
	Additional volume
Sales	1500000	=20000*75
Costs and expenses:
Direct materials	250000	=20000*12.5
Direct labor	300000	=20000*15
Variable manufacturing overhead	200000	=20000*10
Variable selling and admin expenses	380000	=20000*(14+5)