Goodfellow Company Had the Following Results of Operations for the Past

question 53

Essay

Goodfellow Company had the following results of operations for the past year:
Sales (8,000 units at $6.80) $ 54,400
Materials and direct labor (20,000)
Overhead (40% variable) (10,000)
Selling and administrative expenses (all fixed) (6,000)
Operating income $ 18,400
A foreign company (whose sales will not affect Goodfellow's regular sales) offers to buy 2,000 units at $5.00 per unit. In addition to variable manufacturing costs, there would be shipping costs of $1,200 in total on these units. Prepare an analysis of this additional business to show whether Goodfellow should take this order.

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Definitions:

Equivalent Annual Cost

The cost per year of owning and operating an asset over its entire lifespan, taking into account both the initial purchase price and the ongoing operating costs.

NPV

A calculation technique used to estimate the value of an investment by assessing the present value of all cash flows associated with it, both incoming and outgoing.

Burnout Brand

A term referring to a brand that has lost its appeal or distinctiveness in the market, often due to overexposure, lack of innovation, or failure to maintain consumer interest.

Incremental Cash Flows

The additional operating cash flow that an organization receives from taking on a new project, distinct from the organization's existing cash flow.