Feist Co. expects to sell 500,000 units of its product in the next period with the following results.
Sales (500,000 units) $ 7,500,000
Costs and expenses
Direct materials 1,000,000
Direct labor 2,000,000
Selling expenses 750,000
Administrative expenses 1,285,000
Total costs and expenses 5,535,000
Net income $ 1,965,000
The company has an opportunity to sell 50,000 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 $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 (Normal value? Additional value? Combined value?)
Should the company accept or reject the offer?
Hi I am enclosing the solution file. In case of any... View the full answer