Question: Feist Co. expects to sell 200,000 units of its product in the next period with the following results.
The company has an opportunity to sell 20,000 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 $86,000. Prepare an analysis to determine whether the company should accept or reject the offer to sell additional units at the reduced price of $12 per unit.