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.
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Exercise 25-17 Accept new business or not LO A1 Farrow Co. expects to sell 300,000 units...
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