Costs at Per Unit 80,000 Units Direct materials. $12.50 $1,000,000 Direct labor.... 15.00 1,200,000 Variable manufacturing overhead 10.00 800,000 Fixed manufacturing overhead . Variable selling and administrative expenses 17.50 1,400,000 14.00 1,120,000 Fixed selling and administrative expenses. 13.00 1,040,000 Totals..... $82.00 $6,560,000
Goshford Company produces a single product and has capacity to produce 100,000 units per month. Costs to produce its current sales of 80,000 units follow. The regular selling price of the product is $100 per unit. Management is approached by a new customer who wants to purchase 20,000 units of the product for $75 per unit. If the order is accepted, there will be no additional fixed manufacturing
regular selling territory, so there will be a $5 per unit shipping expense in addition to the regular variable selling and administrative expenses. Determine whether management should accept or reject the new business.
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