At the end of the year, a company offered to buy 4,950 units of a product from X
ID: 2573974 • Letter: A
Question
At the end of the year, a company offered to buy 4,950 units of a product from X Company for a special price of $12.00 each instead of the company's regular price of $17.00 each. The following information relates to the 62,300 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 $114,009, and fixed period costs were $90,335. Variable period costs include selling commissions equal to 3% 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 $0.73 per unit, and 2) there will be no selling commissions. What will be the effect of these two changes on the special order profit?
Per-Unit Total Cost of goods sold $8.38 $522,074 Period costs 2.54 158,242 Total $10.92 $680,316Explanation / Answer
5)
Variable cost of goods sold for special order = (522074-114009)/62300 *4950 = 6.55*4950 = 32422.50
Variable period cost for special order = (158242 - 90335)/62300 * 4950 = 1.09*4950 = 5395.50
Total variable cost for special order = 32422.50+5395.50 = 37818
Offered price for special order = 12*4950 = 59400
Profit on special order = 59400- 37818 = 21582
6)
Variable cost of goods sold for special order = [(522074-114009)/62300] + 0.73 *4950 = 7.28*4950 = 36036
Variable period cost for special order = [(158242 - 90335)/62300 * 4950] - 3%*59400 = 1.09*4950 - 1782 = 3613.50
Profit on special order = 59400 - 36036 - 3613.50 = 19750.50
Change in special order profit = 21582 - 19750.50 = 1831.50 (Decrease)
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