Chapter 23 Help Save & Exit Submit 5 Check my work Farrow Co. expects to sell 40

Question

Chapter 23 Help Save & Exit Submit 5 Check my work Farrow Co. expects to sell 400,000 units of its product in the next period with the following results Sales (400,000 units) Costs and expenses $6,000,000 1.25 points Direct naterials Direct labor Overhead Selling expenses Administrative expenses 800,000 1,600,000 400,000 600,000 1,028,000 428,000 $1,572,000 eBook Hint Print References Total costs and expenses Net income The company has an opportunity to sell 40,000 additional units at $12 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 (n 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 $12 per unit Normal Volume Additional Costs and expenses:

Explanation / Answer

Normal Aadditional Combined Total Sales 6,000,000 480000 6,480,000 Cost and expense Direct Material 800,000 80000 880000 Direct Labour 1,600,000 160,000 1760000 Overheads 400,000 60,000 460000 Selling expenese 600,000 0 600,000 Admin expense 1,028,000 172,000 1,200,000 Total Cost and expense 4,428,000 472,000 4,900,000 Incremental Income 1,572,000 8,000 1,580,000 Yes, The company should accept the offer. As the it increases the profits.

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