At the end of the year, a company offered to buy 4,860 units of a product from X
ID: 2463071 • Letter: A
Question
At the end of the year, a company offered to buy 4,860 units of a product from X Company for $11.00 each instead of the company's regular price of $19.00 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:
Sales: $1,140,000
Cost of goods sold: $533,400
Gross margin: $606,600
Selling and administrative costs: $154,800
Profit $451,800
Fixed cost of goods sold for the year was $120,000, and fixed selling and administrative costs were $72,000. The special order product has some unique features that will require additional material costs of $0.90 per unit and the rental of special equipment for $4,500.
5. Profit on the special order would be:
6. Assume the following fact: regular variable selling and administrative costs include sales commissions equal to 2% of sales, but there will be no sales commissions on the special order. This will cause the special order profit to increase by:
Explanation / Answer
Variable cost of good sold = (533400 - 120000) /60000 = 6.89
Variable selling and administration cost = (154800 - 72000) /60000 = $ 1.38
Total variable cost for special order = 6.89 + 1.38 + .90 = 9.17
contribution from special order = 11 - 9.17 = $ 1.83 per unit
Total contribution = 1.83 * 4860 = 8893.8
Profit = 8893.8 - 4500 = $ 4393.8
**Fixed cost is irrelevant as it will be incurred whether offer is accepted or not
6)Variable commiission = 4860 * 1.38 * .02 = 134.136
Profit will increase by $ 134.136
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