Goshford Company produces a single product and has capacity to
produce 170,000 units per month. Costs to produce its current sales
of 136,000 units follow. The regular selling price of the product
is $146 per unit. Management is approached by a new customer who
wants to purchase 34,000 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 $5.80 per unit
shipping expense in addition to the regular variable selling and
administrative expenses.
Per Unit | Costs at 136,000 Units |
|||||||
Direct materials | $ | 12.50 | $ | 1,700,000 | ||||
Direct labor | 15.00 | 2,040,000 | ||||||
Variable manufacturing overhead | 13.00 | 1,768,000 | ||||||
Fixed manufacturing overhead | 17.50 | 2,380,000 | ||||||
Variable selling and administrative expenses | 17.00 | 2,312,000 | ||||||
Fixed selling and administrative expenses | 14.00 | 1,904,000 | ||||||
Totals | $ | 89.00 | $ | 12,104,000 | ||||
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.
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