At the end of the year, a company offered to buy 4,850 units of a product from X

Question

At the end of the year, a company offered to buy 4,850 units of a product from X Company for $11.00 each instead of the company's regular price of $18.00 each. The following functional income statement is for the 60,000 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 $132,000, and fixed selling and administrative costs were $71,400. The special order product has some unique features that will require additional material costs of $0.83 per unit and the rental of special equipment for $5,000.

5. Profit on the special order would be:________?

6. Assume the following fact: regular variable selling and administrative costs include sales commissions equal to 3% of sales, but there will be no sales commissions on the special order. This will cause the special order profit to increase by:________?

Sales $1,080,000    Cost of goods sold    545,400    Gross margin $534,600    Selling and administrative costs      140,400    Profit $394,200   

Explanation / Answer

Calculation of profit on special order Per Unit Special Order 4850 units Sales 1080000 18 53350 (4850*11) Cost of Goods sold Variable 413400 6.89 33416.5 (4850*6.89) Selling $ Admin Cost- Variable 69000 1.15 5577.5 (4850*1.15) Additional Material .83*4850 4025.5 Fixed Cost COGs 1320000 Selling & Admin 71400 Rent 5000 Profit 394200 5330.5 The profit on special order would be $ 5330.5

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