At the end of the year, a company offered to buy 4,290 units of a product from X
ID: 2463328 • Letter: A
Question
At the end of the year, a company offered to buy 4,290 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 69,200 units of the product that X Company has already made and sold to its regular customers: Sales $1,176,400 Cost of goods sold 591,660 Gross margin $584,740 Selling and administrative costs 157,776 Profit $426,964 Fixed cost of goods sold for the year was $130,096, and fixed selling and administrative costs were $72,660. The special order product has some unique features that will require additional material costs of $0.71 per unit and the rental of special equipment for $3,500.
5. Profit on the special order would be
6. Assume the following fact: regular variable selling and administrative costs include sales commissions equal to 4% 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
Particulars
Regular
Special Order
Sales Units
69,200.00
4,290.00
Sales Price
17.00
11.00
Sales
1,176,400.00
Less: Variable Cost
COGS
461,564.00
S & D
85,116.00
Total Variable Cost
546,680.00
7.93
Contribution Per Unit
3.07
Contribution
629,720.00
13,170.30
Fixed Cost
COGS
130,096.00
S & D
72,660.00
Total Fixed Cost
202,756.00
3,500.00
Profit
426,964.00
9,670.30
Profit increase by $9,670
Working Notes:
Variable Cost for Special order=
=[Existing Variable Cost- Selling Commission]/ No of units sold + Additional Material Cost per unit
=[546,680-(1,176,400 x 4%]/69,500 +0.71
=[546,680-470,56]/69,500 +0.71
=[499,624]/69,500+0.71
=7.22+0.71
=$7.93
Fixed cost for Special order=$3,500
Particulars
Regular
Special Order
Sales Units
69,200.00
4,290.00
Sales Price
17.00
11.00
Sales
1,176,400.00
Less: Variable Cost
COGS
461,564.00
S & D
85,116.00
Total Variable Cost
546,680.00
7.93
Contribution Per Unit
3.07
Contribution
629,720.00
13,170.30
Fixed Cost
COGS
130,096.00
S & D
72,660.00
Total Fixed Cost
202,756.00
3,500.00
Profit
426,964.00
9,670.30
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