Exercise 10-2 Accept new business or not LO A1

Exercise 10-2 Accept new business or not LO A1 Farrow Co. expects to sell 500,000 units of its product in the next period with the following results. Sales (500,000 units) Costs and expenses $7,500,000 Direct materials 1,000,000 2,000,000 500,000 Direct labor Overhead Selling expenses Administrative expenses Total costs and expenses 750,000 1,285,000 5,535,000 $1,965,000 Net income opportunity to sell 50,000 additional units at $13 per unit. The additional sales would not affect its current The company has an 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 $215,000. Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $13 per unit. Additional Combined Total Normal Volume Volume Costs and expenses: Total costs and expenses Incremental income (loss) from new business Should the company accept or reject the offer? O The company should accept the offer O The company should reject the offer