Goshford Company produces a single product and has capacity to produce 190,000 units per month. Costs to produce its current sales of 152,000 units follow. The regular selling price of the product is $136 per unit. Management is approached by a new customer who wants to purchase 38,000 units of the product for $82.80 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 $6.00 per unit shipping expense in addition to the regular variable selling and administrative expenses. Per Unit Costs at 152,000 Units Direct materials $ 12.50 $ 1,900,000 Direct labor 15.00 2,280,000 Variable manufacturing overhead 14.00 2,128,000 Fixed manufacturing overhead 17.50 2,660,000 Variable selling and administrative expenses 18.00 2,736,000 Fixed selling and administrative expenses 15.00 2,280,000 Totals $ 92.00 $ 13,984,000 Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $82.80 per unit. Determine whether management should accept or reject the new business.
Goshford Company produces a single product and has capacity to produce 190,000 units per month. Costs to produce its current sales of 152,000 units follow. The regular selling price of the product is $136 per unit. Management is approached by a new customer who wants to purchase 38,000 units of the product for $82.80 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 $6.00 per unit shipping expense in addition to the regular variable selling and administrative expenses. Per Unit Costs at 152,000 Units Direct materials $ 12.50 $ 1,900,000 Direct labor 15.00 2,280,000 Variable manufacturing overhead 14.00 2,128,000 Fixed manufacturing overhead 17.50 2,660,000 Variable selling and administrative expenses 18.00 2,736,000 Fixed selling and administrative expenses 15.00 2,280,000 Totals $ 92.00 $ 13,984,000 Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $82.80 per unit. Determine whether management should accept or reject the new business.
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