Question Completion:
The special offer price is taken as $75.00 and not $77.40 per unit.
Current sales is taken as 80,000 units instead of 84,000 units.
Answer:
Goshford Company
If Goshford Company accepts the offer to sell additional 21,000 units at the reduced price of $75.00 per unit, the combined total net income is:
$5,445,500.
Explanation:
Data and Calculations:
Monthly production capacity = 105,000 units
Current sales = 80,000 units
Regular unit selling price = $146
Regular sales revenue = $11,680,000 ($146 * 80,000)
Special order selling price = $75.00
Special order quantity = 21,000
Special order sales revenue = $1,575,000 ($75 * 21,000)
Per unit Cost at 80,000 units
Direct materials 12.5 $1,000,000
Direct labor 15 1,200,000
Variable
manufacturing overhead 10 800,000
Variable production cost 37.50 $3,000,000
Fixed manufacturing
overhead 17.5 1,400,000
Variable selling and
administrative expenses 14 1,120,000
Fixed selling and
administrative expenses 13 1,040,000
Totals 82 6,560,000
Relevant costs: Unit
Variable production cost 37.50
Variable selling and
administrative expenses 14.00
Shipping expense 8.00
Total relevant cost per unit $59.50
Cost of goods sold:
Regular = $3,000,000 (80,000 * $37.50)
Special = $787,500 (21,000 * $37.50)
Combined Total Net Income:
Regular Special Order Total
Sales revenue $11,680,000 $1,575,000 $13,255,000
Cost of goods sold 3,000,000 787,500 3,787,500
Contribution $8,680,000 $787,500 $9,467,500
Fixed manufacturing
overhead 1,400,000 0 1,400,000
Variable selling and admin.
expenses 1,120,000 294,000 1,414,000
Fixed selling and admin.
expenses 1,040,000 0 1,040,000
Shipping expense 168,000 168,000
Total expenses 3,560,000 462,000 4,022,000
Net Income $5,120,000 $325,500 $5,445,500
