At the end of the year, a company offered to buy 4,970 units of a product from X

Question

At the end of the year, a company offered to buy 4,970 units of a product from X Company for a special price of $12.00 each instead of the company's regular price. The following information relates to the 60,200 units of the product that X Company has already made and sold to its regular customers:

The special order product has some unique features that will require additional material costs of $0.78 per unit and the rental of special equipment for $3,000.

5. Profit on the special order would be how much?

Total    Per-Unit Revenue $1,143,800 $19.00    Cost of Goods Sold    Variable 348,558 5.79       Fixed 136,654 2.27    Selling and Administrative Costs    Variable   80,066   1.33       Fixed     81,872   1.36    Profit $496,650 $8.25   

Explanation / Answer

Incremental analysis

Profit from special order is $17377

Incremental revenue (4970*12) 59640 Incremental cost Variable cost of goods sold (4970*5.9) (28776.30) Variable Selling and Administrative Costs (4970*1.33) (6610.10) Additional material (4970*0.78) (3876.60) Special equipment (3000) Total incremental cost (42263) Incremental profit 17377

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