Exercise 23-3 Accept new business or not LO A1 Goshford Company produces a single product and has capacity to produce 150,000 units per month. Costs to produce its current sales of 120,000 units follow. The regular selling price of the product is $126 per unit. Management is approached by a new customer who wants to purchase 30,000 units of the product for $77.40 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 $6.20 per unit shipping expense in addition to the regular variable selling and administrative expenses. Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses Totals Per Unit $12.50 15.00 13.00 17.50 14.00 14.00 $ 86.00 Costs at 120,000 Units $ 1,500,000 1,800,000 1,560,000 2,100,000 1,680,000 1,680,000 $ 10,320,000 Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $77.40 per unit. Calculate the combined total net income if the company accepts the offer to sell additional units at the reduce unit. Normal Volume Additional Volume Combined Total Sales $ 17,040,000 $ 2,322,000 $ 19,362,000 Costs and expenses: Direct materials 375,000 1,875,000 Direct labor 1,500,000 1,800,000 1,560,000 450,000 2,250,000 1,950,000 Variable overhead 390,000 420,000 Variable selling and admin. exp 1,680,000 2,100,000 Fixed overhead 2,100,000 2,100,000 Fixed selling and admin. exp 1,680,000 1,680,000 Total costs and expenses Net income (loss) 10,320,000 6,720,000 1,635,000 11,955,000 687,000 $ 7,407,000 $ $ Determine whether management should accept or reject the new business. Accept O Reject