Exercise 23-2 Accept new business or not LO A1 Farrow Co. expects to sell 150,000 units of its product in the next period with the following results. Sales (150,000 units) Costs and expenses $2,250,e00 Direct materials Direct labor Overhead Selling expenses Administrative expenses 300,000 600,000 150,000 225,00 Total costs and expenses Net income 385,500 1,660,500 $ 589,500 The company has an opportunity to sell 15,000 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 15% and (2) administrative expenses would increase by $64,500 Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $12 per unit. ombine Total Normal Volume Volume Costs and expenses: Total costs and expenses Incremental income (loss)s from new business Exercise 23-7 Scrap or rework LO A1 Varto Company has 7,000 units of its sole product in inventory that it produced last year at a cost of $22 each. This year's model is superior to last year's, and the 7,000 units cannot be sold at last year's regular selling price of $35 each. Varto has two alternatives for these items: (1) they can be sold to a wholesaler for $8 each or (2) they can be reworked at a cost of $125,000 and then sold for $25 each. Prepare an analysis to determine whether Varto should sell the products as is or rework them and then sell them. INCREMENTAL REVENUE AND COST OF ADDITIONAL PROCESSING Revenue if processed further Revenue if sold as is |Incremental revenue Incremental net income(Loss) The company should