Question

Check my work Goshford Company produces a single product and has capacity to produce 125.000 units per month. Costs to produce its current sales of 100,000 units follow. The regular seting price of the product is $102 per unit Management is approached by a new customer who wants to purchase 25,000 units of the product for $79.20 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 seling territory, so there will be a $5.80 per unit shipping expense in addition to the regular variable selling and administrative expenses points Per Coate at it 100.000 unita Direct labor 1.200.000 Fixed manufacturing overhead Variable selling and administrative expenses Fixed sell and administrative expenses

Answer 1

	Normal Volume (100,000 units)	Additional Volume (25,000 units)	Combined Total
Sales Revenue ***	$10,200,000	$1,980,000	$12,180,000
Costs and expenses:
Direct materials (@ $12.50)	$1,250,000	$312,500	$1,562,500
Direct labor (@ $15)	$1,500,000	$375,000	$1,875,000
variable manufacturing overhead (@ $12)	$1,200,000	$300,000	$1,500,000
Fixed manufacturing overhead**	$1,750,000	0	$1,750,000
Variable selling and administrative expenses (@ $17)	$1,700,000	$425,000	$2,125,000
Fixed selling and administrative expenses**	$1,400,000	0	$1,400,000
Shipping expense (@ $5.80)*	0	$145,000	$145,000
Total costs and expenses	$8,800,000	$1,557,500	$10,357,500
Net income (loss)	$1,400,000	$422,500	$1,822,500

*Shipping expense is to incurred in case of additional volume only, therefore cost placed in that column only.

**Fixed manufacturing overhead and Fixed selling and administrative expenses are to be only incurred in normal volume only, therefore not considered for additional volume.

***Sales Revenue in case of normal units of $100,000 has been calculated @ $102 while in case of additional units, the rate used is $79.20.