Exercise 10-2 Accept new business or not LO A1 Farrow Co. expects to sell 200,000 units of its product in the next period with the following results Sales (200,000 units) Costs and expenses $3,000,000 Direct materials Direct labor Overhead Selling expenses Administrative expenses 490,00te 800,80e 200,000 300, eee 514,90e 2,214,000 $786, 000 Total costs and expenses Net income The company has an opportunity to sell 20,000 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 $86,000 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 Volume Combined Normal Volume Total Sales $3,000,000 3,000,000 Costs and expenses 600,000 800,000 400,000 230,000 300,000 2,330,000 670,000 Administrative expenses Direct labor Direct materials Overhead Selling expenses 514,000 800,000 400,000 200,000 300,000 2,214,000 86,000 30,000 Total costs and expenses 116,000 Incremental income (loss) from new business 786,000 $ (116,000)