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 $75.00 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 $5.00 per unit shipping expense in addition to the regular variable selling and administrative expenses. Per Unit Costs at 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 17.50 1,400,000 Variable selling and administrative expenses 14.00 1,120,000 Fixed selling and administrative expenses 13.00 1,040,000 Totals $ 82.00 $ 6,560,000 Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $75.00 per unit.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 $75.00 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 $5.00 per unit shipping expense in addition to the regular variable selling and administrative expenses.

	Per Unit	Costs at 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			17.50		1,400,000
Variable selling and administrative expenses			14.00		1,120,000
Fixed selling and administrative expenses			13.00		1,040,000
Totals		$	82.00	$	6,560,000

Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $75.00 per unit.

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