Goshford Company produces a single product and has capacity to produce 125,000 units per month. Costs to produce its current sales of 100,000 units follow. The regular selling price of the product is $124 per unit. Management is approached by a new customer who wants to purchase 25,000 units of the product for $93 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 companys regular selling territory, so there will be a $6 per unit shipping expense in addition to the regular variable selling and administrative expenses.

	Per Unit				Costs at 100,000 Units
Direct materials		$	12.50			$	1,250,000
Direct labor			17.50				1,750,000
Variable manufacturing overhead			11.00				1,100,000
Fixed manufacturing overhead			17.50				1,750,000
Variable selling and administrative expenses			15.00				1,500,000
Fixed selling and administrative expenses			13.00				1,300,000
Totals		$	86.50			$	8,650,000

Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $93 per unit.

Normal Volume Additional Volume Combined Total $ 1,250,000 $ 1,250,000 Sales Costs and expenses: Direct materials Direct labor Variable overhead Fixed overhead Variable selling and admin. exp Fixed selling and admin. exp 1,750,000 1,100,000 1,750,000 1,750,000 1,500,000 1,300,000 1,750,000 1,100,000 1,750,000 1,750,000 1,500,000 1,300,000 Total costs and expenses Net income (loss) 9,150,000 7,900,000) 0 0 9,150,000 $ (7,900,000) $ $ Determine whether management should accept or reject the new business. Accept Reject