Goshford Company produces a single product and has capacity to produce 170,000 u

Question

Goshford Company produces a single product and has capacity to produce 170,000 units per month. Costs to produce its current sales of 136.000 units follow. The regular selling price of the product is $150 per unit. Management is approached by a new customer who wants to purchase 34.000 units of the product for $112.50 per unit. If the order is accepted, there will be no additional fixed manufacturing overhead, and no additional fixed selling and territory, so there will be a $5 per unit shipping expense in addition to the administrative expenses. administrative expenses. The customer is not in the company's regular selling regular variable selling and at 136 S 1,700.000 5 12.50 5.00 4.00 17.50 15.00 15.00 Direct materials Direct labor Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses 2.040.000 1904,000 2,380.000 2.040.000 2.040.000 Totals 89.00 12.104.000 Calculate the combined total net income if the company accepts the ofer to sell additional units at the reduced price of $112.5 per unit Normal Volume Additional Combi Total Volume ales 136.000 $136.000 Costs and expenses Direct materials Direct labor Variable overhead Fixed overhead Variabie selling and admin. exp Fixed selling and admin. exp Total costs and excenses Net income floss 133 0001 133.000 Determne Re ect

Explanation / Answer

Company should accept the offer, becuase net income of the company will increase by $1,734,000 if the order accepted

Normal volume Additional volume Combined total Sales 136,000*$150 = $20,400,000 34,000*$112.50 = $3,825,000 $    24,225,000 Costs and expenses Direct materials $                           1,700,000 34,000*$12.50 = $425,000 $      2,125,000 Direct labour $                           2,040,000 34,000*$15 = $510,000 $      2,550,000 Variable manufacturing overhead $                           1,904,000 34,000*$14 = $476,000 $      2,380,000 Fixed manufacturing overhead $                           2,380,000 $      2,380,000 Variable selling and administrative expenses $                           2,040,000 34,000*$15 = $510,000 $      2,550,000 Fixed selling and administrative expenses $                           2,040,000 $      2,040,000 Additional shipping cost 34,000*$5 = $170,000 $         170,000 Total costs and expenses $                         12,104,000 $                            2,091,000 $    14,195,000 Net income (Loss) $                           8,296,000 $                            1,734,000 $    10,030,000

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