Goshford Company produces a single product and has capacity to produce 140,000 u
ID: 2593257 • Letter: G
Question
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 $102 per unit. Management is approached by a new customer who wants to purchase 28,000 units of the product for $76.50 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 $5 per unit shipping expense in addition to the regular variable selling and administrative expenses. Costs at 112,000 Units $ 12.50 1,400,000 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses 15.00 14.00 17.50 17.00 14.00 1,680,000 1,568,000 1,960,000 1,904,000 1,568,000 Totals $ 90.00 Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $76.5 per unit. Additional Volume Combined Total Normal Volume Costs and expenses: Total costs and expenses Net income (loss)Explanation / Answer
Calculation of the combined total net income if the company accepts the offer to sell additional units at the reduced price of $76.5 per unit Normal Volume (112000 units) Additional Volume (28000 units) Combined Total Sales $11,424,000 $2,142,000 Costs and Expenses : Direct Material $1,400,000 $350,000 Direct Labor $1,680,000 $420,000 Variable Manufacturing overhead $1,568,000 $392,000 Fixed Manufacturing Overhead $1,960,000 $0 Variable Selling and administrative expenses $1,904,000 $616,000 Fixed Selling and administrative expenses $1,568,000 $0 Total Costs and Expenses $10,080,000 $1,778,000 Net Income / (Loss) $1,344,000 $364,000 $1,708,000 As the additional volume lead to a increase in net income by $364000 , the management should accept the new business.
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