Goshford Company produces a single product and has capacity to produce 100,000 units per month. Costs to 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 $75.00 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 $5.00 per unit shipping expense in addition to the regular variable selling and administrative expenses.    Per Unit Costs at 80,000 Units Direct materials   $ 12.50     $ 1,000,000   Direct labor     15.00       1,200,000   Variable manufacturing overhead     10.00       800,000   Fixed manufacturing overhead     17.50       1,400,000   Variable selling and administrative expenses     14.00       1,120,000   Fixed selling and administrative expenses     13.00       1,040,000   Totals   $ 82.00     $ 6,560,000        Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $75.00 per unit.

Question

Goshford Company produces a single product and has capacity to produce 100,000 units per month. Costs to 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 $75.00 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 $5.00 per unit shipping expense in addition to the regular variable selling and administrative expenses.
 

  Per Unit Costs at 80,000 Units
Direct materials   $ 12.50     $ 1,000,000  
Direct labor     15.00       1,200,000  
Variable manufacturing overhead     10.00       800,000  
Fixed manufacturing overhead     17.50       1,400,000  
Variable selling and administrative expenses     14.00       1,120,000  
Fixed selling and administrative expenses     13.00       1,040,000  
Totals   $ 82.00     $ 6,560,000  
 

   
Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $75.00 per unit.
 

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