Answer:
Farrow Co.
a. The combined total net income if the company accepts the offer to sell the additional units at the reduced price of $13 per unit is:
= $2,020,000.
b. The company should accept the offer, provided there is no proportionate additional selling expense.
Explanation:
a) Data and Calculations:
Normal Additional Total
Expected sales 500,000 units 50,000 units 550,000 units
Sales revenue $7,500,000 $650,000 $8,150,000
Costs and expenses:
Direct materials 1,000,000 100,000 1,100,000
Direct labor 2,000,000 200,000 2,200,000
Overhead 500,000 80,000 580,000
Selling expenses 750,000 0 750,000
Administrative expenses 1,285,000 215,000 1,500,000
Total costs and expenses 5,535,000 595,000 6,130,000
Net income $ 1,965,000 $55,000 $2,020,000
