Question

Exercise 25-17 Accept new business or not LO A1 Farrow Co. expects to sell 300,000 units of its product in the next period wi
to sell 30,000 additional units at $13 per unit. The additional sales expected sales. Direct materials and labor costs per un
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Answer #1

Solution:

First of all we need to find out Unit Price for direct labor and material

Normal Volume

$ per unit (Total Value / 300,000 Units)

Direct materials

$600,000

$2.00

Direct labor

$1,200,000

$4.00

Statement of Evaluation of additional Volume

Normal Volume (300,000 Units)

Additional Volume (30,000 Units)

Combined Total

Sales

$4,500,000

$390,000

$4,890,000

Costs and expenses

Direct materials

$600,000

$60,000

(30,000*$2)

$660,000

Direct labor

$1,200,000

$120,000

($30,000*4)

$1,320,000

Overhead

$300,000

$48,000

($300,000*16%)

$348,000

Selling Expenses

$450,000

$0

$450,000

Administrative Expenses

$771,000

$129,000

$900,000

Total costs and expenses

$3,321,000

$357,000

$3,678,000

Incremental Income (loss) from New Business

$33,000

($390,000 - $357,000)

The company should accept the offer.

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

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