At the end of the year, a company offered to buy 5,000 units of a product from X

Question

At the end of the year, a company offered to buy 5,000 units of a product from X Company for $11.00 each instead of the company's regular price of $17.00 each. The following functional income statement is for the 65,700 units of the product that X Company has already made and sold to its regular customers:

Fixed cost of goods sold for the year was $144,540, and fixed selling and administrative costs were $96,579. The special order product has some unique features that will require additional material costs of $0.74 per unit and the rental of special equipment for $3,500.

5. Profit on the special order would be $8,950

6. Assume the following fact: regular variable selling and administrative costs include sales commissions equal to 4% of sales, but there will be no sales commissions on the special order. This will cause the special order profit to increase by

Sales $1,116,900    Cost of goods sold    565,020    Gross margin $551,880    Selling and administrative costs      186,588    Profit $365,292   

Explanation / Answer

($17 x 4% ) x 5000 =$3400

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