Goshford Company produces a single product and has capacity to produce 140,000 units per month. Costs...

Goshford Company produces a single product and has capacity to produce 140,000 units per month. Costs to produce its current sales of 112,000 units follow. The regular selling price of the product is $110 per unit. Management is approached by a new customer who wants to purchase 28,000 units of the product for $77.40 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 $6.60 per unit shipping expense in addition to the regular variable selling and administrative expenses.

	Per Unit			Costs at 112,000 Units
Direct materials		$	12.50		$	1,400,000
Direct labor			15.00			1,680,000
Variable manufacturing overhead			11.00			1,232,000
Fixed manufacturing overhead			17.50			1,960,000
Variable selling and administrative expenses			17.00			1,904,000
Fixed selling and administrative expenses			13.00			1,456,000
Totals		$	86.00		$	9,632,000

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. Determine whether management should accept or reject the new business.

	Normal Volume	Additional Volume	Combined Total

Costs and expenses:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Variable selling and admin. exp
Fixed selling and admin. exp

Total costs and expenses
Net income (loss)

Expert Solution

	Normal Volume	Additional Volume	Combined Total
Sales Revenue	12,320,000	2,167,200	14,487,200
Costs and expenses:
Direct materials	1,400,000	350,000	1,750,000
Direct labor	1,680,000	420,000	2,100,000
Variable manufacturing overhead	1,232,000	308,000	1,540,000
Fixed manufacturing overhead	1,960,000	-	1,960,000
Variable selling and admin. exp	1,904,000	660,800	2,564,800
Fixed selling and admin. exp	1,456,000	-	1,456,000

Total costs and expenses	9,632,000	1,738,800	11,370,800
Net income (loss)	2,688,000	428,400	3,116,400

Should accept since profit

jeff jeffy answered 2 years ago

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