Question

Goshford Company produces sales of 100,000 units follow. The regular selling a single product and has capacity to produce 125,000 units per month. Costs to produce its current price of the product is $136 per unit. Management is approached by a new customer who wants to purchase 25.000 units of the product for $77.40 per unit. If the order is accepted, there will be no additional fixed ring overhead and no additional fixed selling and administrative expenses. The customer is not in the company's regular per unit shipping expense in addition to the regular variable selling and administrative seling terntory, so there will be a $740 expenses. Costs at Per Unit 100, 000 Unit $12.50 $1,250,000 1,500,000 1,400,000 1,750,000 1,400,000 13.001.300,00 86.00 $8,600,000 Direct materials Direct Labor 15.00 Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses 14.00 17.50 14.00 Totals Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $77.40 per unit. Additional Combined Volume Normal Volume Total Costs and expenses Total costs and expenses Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $7 unit. Normal Volume Additional Combined Volume Total Costs and expenses: Total costs and expenses Net income (loss) nces Determine whether management should accept or reject the new business. Accept Reject

Answer 1

COMBINED TOTAL NET INCOME :
	Per unit	Normal Volume	Additional Volume	Combined Total
Units		100000	25000	125000
Costs and expenses:
DM	12.5	1250000	312500	1562500
DL	15	1500000	375000	1875000
V M O/H	14	1400000	350000	1750000
F M O/H	17.5	1750000	0	1750000
V S&A exp	14	1400000	350000	1750000
F S&A exp	13	1300000	0	1300000
Shipping	7.4	0	185000	185000
Total Costs		8600000	1572500	10172500
Cost per unit		86	62.9	81.38
Total Sales		13600000	1935000	15535000
Net Income		5000000	362500	5362500
Selling price		136	77.4
Contribution to NOI		50	14.5
As the sale of additional 25000 units bring a contribution of $14.50 per additional
unit sale, while bring down the overall per unit cost of Production to $81.38
from $86, so management should accept the new business.