At the end of the year, a company offered to buy 4,540 units of a product from X

Question

At the end of the year, a company offered to buy 4,540 units of a product from X Company for a special price of $12.00 each instead of the company's regular price of $18.00 each. The following information relates to the 64,200 units of the product that X Company made and sold to its regular customers during the year:

Fixed cost of goods sold for the year were $134,820, and fixed period costs were $70,620. Variable period costs include selling commissions equal to 2% of revenue.

5. Profit on the special order is ________.

6. Assume the following two changes for the special order: 1) variable cost of goods sold will increase by $0.84 per unit, and 2) there will be no selling commissions. What will be the effect of these two changes on the special order profit?

Explanation / Answer

Incremental Profit a. Prepare an incremental analysis for the special order. Sales (64,200 units) = $ 1155600 Cost of goods sold = 542490 - 134820 = 407,670 / 64200 = $6.35 variable cost per unit Operating expenses =150870 - 70620 = 80520 / 64200 = $1.25 variable cost per unit Revenues = 4,540 x 12 = 54,480 Cost of Goods Sold = 4,540 x (6.35) = $ 28,829 Operating Expenses = 4,540 x 1.25 = $ 5675 Net income = $ 19976 b. 1) variable cost of goods sold will increase by $0.84 per unit, and 2) there will be no selling commissions. What will be the effect of these two changes on the special order profit? Sales (64,200 units) = $ 1155600 Cost of goods sold = 542490 - 134820 - (1155600 *2%) = 384,558 / 64200 = $5.99 variable cost per unit Operating expenses =150870 - 70620 = 80520 / 64200 = $1.25 variable cost per unit Revenues = 4,540 x 12 = 54,480 Cost of Goods Sold = 4,540 x (5.99+0.84) = $ 31,008.2 Operating Expenses = 4,540 x 1.25 = $ 5675 Net income = $ 17796.8

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.