Sales (200,000 units) Costs and expenses Direct materials Direct labor Overhead Selling expenses Administrative expenses Total costs and expenses Net income $3,000,000 400,000 800,000 200,000 300,000 514,000 2,214,000 $ 786,000 The company has an opportunity to sell 20,000 additional units at $12 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 16% and (2) administrative expenses would increase by $86,000. Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $12 per unit. Should the company accept or reject the offer?

Sales (200,000 units) Costs and expenses Direct materials Direct labor Overhead Selling expenses Administrative expenses Total costs and expenses Net income $3,000,000 400,000 800,000 200,000 300,000 514,000 2,214,000 $ 786,000 The company has an opportunity to sell 20,000 additional units at $12 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 16% and (2) administrative expenses would increase by $86,000. Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $12 per unit. Should the company accept or reject the offer?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 7E: Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The...

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