At the end of the year, a company offered to buy 4,470 units of a product from X
ID: 2575024 • Letter: A
Question
At the end of the year, a company offered to buy 4,470 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 66,600 units of the product that X Company made and sold to its regular customers during the year:
Per-Unit
Total
Cost of goods sold
$8.10
$539,460
Period costs
2.51
167,166
Total
$10.61
$706,626
Fixed cost of goods sold for the year were $129,204, and fixed period costs were $83,250. Variable period costs include selling commissions equal to 4% of revenue.
What is the Profit on the special order?
Assume the following two changes for the special order: 1) variable cost of goods sold will decrease by $0.78 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
$8.10
$539,460
Period costs
2.51
167,166
Total
$10.61
$706,626
Explanation / Answer
variable cost of goods sold per unit =(539460-129204)/66600= 6.16 Variable Period costs =(167166-83250)/66600=1.26 Variable commissions = 18*4%= 0.72 1 Incremental revenue 53640 =4470*12 Less:Variable costs 33167 =4470*(6.16+1.26) Profit on the special order 20473 2 Incremental revenue 53640 =4470*12 Less:Variable costs 26462 =4470*(6.16-0.78+1.26-0.72) Profit on the special order 27178 Effect of these two changes on the special order profit wil be incease of $6705(27178-20473)
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