Reference no: EM132541991

Farrow Co. expects to sell 300,000 units of its product in the next period with the following results.

Sales (300,000 units)$4,500,000

Costs and expenses Direct materials 600,000

Direct labor 1,200,000

Overhead 300,000

Selling expenses 450,000

Administrative expenses 771,000

Total costs and expenses 3,321,000

Net income$1,179,000

• The company has an opportunity to sell 30,000 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 16% and (2) administrative expenses would increase by $129,000.

Question 1: Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $13 per unit. Should the company accept or reject the offer?