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Firefox File Edit View History Bookmarks Tools Window Help C., 93% C.} Sat 6:30 PM Atika Ishtiaq a E Oracle PeopleSoft Sign-in hcc canvas-Google Search X C Chegg Study Guided Solutions + https:/newconnect.mheducation.comf t.html ? a search Ch 10 Ex 10-2 Saved Help Save & Exit Submit Check my work Exercise 10-2 Accept new business or not LO A1 Farrow Co. expects to sell 400,000 units of its product in the next period with the following results. points Sales (400,000 unita) Costs and expenses $6,000,000 Direct materials Direct labor Overhead Selling expenses Administrative expenses 800,000 1, 600,000 400,000 600,000 1,028,000 Hint Ask Total costs and expenaea Net income Print $1,572,000 The company has an opportunity to sell 40,000 additional units at $13 per unit. The additional sales would not affect its current expected sales. Direct materials and labor costs per unit would be the same for the additional units as they are for the regular units. However, the additional volume would create the following incremental costs: (1) total overhead would increase by 15% and (2) administrative expenses would increase by $172,000. Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $13 per unit. Normal Volume Volume Total Costs and expenses Prev 1 of 1 i Next 988

Explanation / Answer

Normal Volume Additional Volume Combined Total Sales $     60,00,000 $       5,20,000 $     65,20,000 Cost and expenses: Direct Materials $       8,00,000 $           80,000 $       8,80,000 Direct Labour $     16,00,000 $       1,60,000 $     17,60,000 Overhead $       4,00,000 $           60,000 $       4,60,000 Selling Expenses $       6,00,000 $                    -   $       6,00,000 Administrative Expenses $     10,28,000 $       1,72,000 $     12,00,000 Total Costs and expenses $     44,28,000 $       4,72,000 $     49,00,000 Incremental Income (loss) from new business $     15,72,000 $           48,000 $     16,20,000 The company should accept the offer Workings: Additional Volume Sales (15,000 X $12) $       5,20,000 Cost and expenses: Direct Materials ($8,00,000 X 40,000/4,00,000) $           80,000 Direct Labour ($16,00,000 X 40,000/4,00,000) $       1,60,000 Overhead ($4,00,000 X 15%) $           60,000 Selling Expenses $                    -   Administrative Expenses $       1,72,000 Total Costs and expenses $       4,72,000

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