At the end of the year, a company offered to buy 4,950 units of a product from X
ID: 2575014 • 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
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
variable cost of goods sold per unit =(522074-114009)/62300=6.55 Variable Period costs =(158242-90335)/62300= 1.09 Variable commissions = 17*3%= 0.51 1 Incremental revenue 59400 =4950*12 Less:Variable costs 37818 =4950*(6.55+1.09) Profit on the special order 21582 2 Incremental revenue 59400 =4950*12 Less:Variable costs 38907 =4950*(6.55+0.73+1.09-0.51) Profit on the special order 20493 Effect of these two changes on the special order profit wil be decease of $1089 or -1089(21582-20493)
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