Question

Goshford Company produces a single product and has capacity to produce 185,000 units per month. Costs to produce its current sales of 148,000 units follow. The regular selling price of the product is $126 per unit. Management is approached by a new customer who wants to purchase 37,000 units of the product for $7740 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 $780 per unit shipping expense in addition to the regular variable selling and administrative expenses. Costs at Per Unit 148,e00 Units Direct naterials $12.50 15.00 $ 1,850,000 2,220,000 1,776,000 Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses 12.00 17.50 2,590,00e 2,368,000 16.00 13.00 1,924,000 $12.728,000 Totals $86.00 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

Answer 1

Goshford Company Requirement 1 Additional Combined Normal Volume Volume Total 23310000 286380026173800 Sales Costs and Expenses: Direct Materials Direct Labour Variable Overhead Fixed Overhead Variable selling and admin exp. Fixed selling and admin exp. 462500 555000 444000 1850000 2220000 1776000 2590000 2368000 1924000 2312500 2775000 2220000 2590000 3248600 1924000 880600 Total Costs & Expenses Net Income(loss) 12728000 10582000 2342100 5 21700 15070100 11103700 Calculation: Normal Volume Sales :185000 units x $126 = $23310000 Additional Revenue from new order: 37000 units x $77.40 = $2863800 Additional Direct Materials : 37000 units x $12.50 = $462500 Additional Direct Labour : 37000 units x $15.00 = $555000 Additional Variable Overhead : 37000 units x $12 = $444000 Additional selling and admin expenses : 37000 units x ( 16 + 7.80) = $880600 Requirement 2 Accept Goshford should accept the new business as it is increasing profit by $521700