Goshford Company produces a single product and has capacity to produce 170,000 units per month. Costs to
Question:
Goshford Company produces a single product and has capacity to produce 170,000 units per month. Costs to produce its current sales of 136,000 units follow. The regular selling price of the product is $146 per unit. Management is approached by a new customer who wants to purchase 34,000 units of the product for $80.10 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 $5.80 per unit shipping expense in addition to the regular variable selling and administrative expenses.
| Per Unit | Costs at 136,000 Units | |||||||
| Direct materials | $ | 12.50 | $ | 1,700,000 | ||||
| Direct labor | 15.00 | 2,040,000 | ||||||
| Variable manufacturing overhead | 13.00 | 1,768,000 | ||||||
| Fixed manufacturing overhead | 17.50 | 2,380,000 | ||||||
| Variable selling and administrative expenses | 17.00 | 2,312,000 | ||||||
| Fixed selling and administrative expenses | 14.00 | 1,904,000 | ||||||
| Totals | $ | 89.00 | $ | 12,104,000 | ||||
Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $80.10 per unit.
Expert Answer:
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