Chapter 25 Exercises and Problems Saved 4 Farrow Co. expects to sell 300,000 uni

Question

Chapter 25 Exercises and Problems Saved 4 Farrow Co. expects to sell 300,000 units of its product In the next period with the following results. $4,500,0ee Sales (30e,800 units) Costs and expenses points Direct materials Direct labor Overhead Selling expenses Administrative expenses 600,00 1,20,0ee 300,00e 450,00e 771,0ee 3,321,8ee $1,179,0ee eBook Total costs and expenses Net income Hint The company has an opportunity to sell 30,000 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: (1) total overhead would increase by 15% and (2) administrative expenses would Increase by $129,000 Print References 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 Volume Total Costs and expenses Total costs and expenses Incremental income (loss) from new business Should the company accept or reject the offer? O The company should reject the offer O The company should accept the offer

Explanation / Answer

SOLUTION

(A)

Additional volume-

Sales - 30,000 * $12 = $360,000

Direct materials - $600,000 / 300,000 * 30,000 = $60,000

Direct labor = $1,200,000 / 300,000 * 30,000 = $120,000

Overhead = $300,000 *15% = $45,000

(B) The company should accept the offer.

Normal Volume ($) Additional volume ($) Combined total ($) Sales 4,500,000 360,000 4,860,000 Costs and expenses: Direct materials 600,000 60,000 660,000 Direct labor 1,200,000 120,000 1,320,000 Overhead 300,000 45,000 345,000 Selling expenses 450,000 450,000 Administrative expenses 771,000 129,000 900,000 Total costs and expenses 3,321,000 354,000 3,675,000 Incremental income (loss) from new business 1,179,000 6,000 1,185,000

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