Question

# PLEASE DO PROBLEM Farrow Co. expects to sell 300,000 units of its product in the next...

Farrow Co. expects to sell 300,000 units of its product in the next period with the following results.

 Sales (300,000 units) \$ 4,500,000 Costs and expenses Direct materials 600,000 Direct labor 1,200,000 Overhead 300,000 Selling expenses 450,000 Administrative expenses 771,000 Total costs and expenses 3,321,000 Net income \$ 1,179,000

The company has an opportunity to sell 30,000 additional units at \$13 per unit. The additional sales would not affect its current expected sales. Direct materials and labor costs per unit would be the same for the additional units as they are for the regular units. However, the additional volume would create the following incremental costs: (1) total overhead would increase by 15% and (2) administrative expenses would increase by \$129,000.

Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of \$13 per unit.

 Normal Volume Additional Volume Combined Total Costs and expenses: Total costs and expenses Incremental income (loss) from new business

 Normal Volume Additional Volume Combined Total Sales 4500000 390000 4890000 Costs and expenses: Direct materials 600000 60000 660000 Direct labor 1200000 120000 1320000 Overhead 300000 45000 345000 Selling expenses 450000 0 450000 Administrative expenses 771000 129000 900000 Total costs and expenses 3321000 354000 3675000 Incremental income (loss) from new business 1179000 36000 1215000 Workings: Additional Volume Sales 390000 =30000*13 Costs and expenses: Direct materials 60000 =600000/300000*30000 Direct labor 120000 =1200000/300000*30000 Overhead 45000 =300000*15%

#### Earn Coins

Coins can be redeemed for fabulous gifts.