At the end of the year, a company offered to buy 4,520 units of a product from X

Question

At the end of the year, a company offered to buy 4,520 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 65,500 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 $119,865, and fixed selling and administrative costs were $73,360. The special order product has some unique features that will require additional material costs of $0.80 per unit and the rental of special equipment for $5,000.

5. Profit on the special order would be $5,486

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 $1,113,500    Cost of goods sold    562,645    Gross margin $550,855    Selling and administrative costs      146,720    Profit $404,135   

Explanation / Answer

6)We have to reduce 3% of sales cost into s,g& a cost and profit increases by this amount

=(3%*4520*11)=$1491.6

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