Chapter 10, Problem 3E

Goshford Company produces a single product and has capacity to produce 100,000 units per month. Costs 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 or not 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.

1. Determining whether management should accept or reject the new business.

2. What nonfinancial factors should management consider when deciding whether to take this order?