At the end of the year, X Company had sold 62,100 units of its regular product f

Question

At the end of the year, X Company had sold 62,100 units of its regular product for $875,610. A company offered to buy 4,360 units for $11.88 each. There was enough capacity to produce these additional units. The following cost functions apply to X Company's regular operations: where X Is the number of units produced and sold. Also, because the special order product is slightly different than the regular product, direct material cost per unit will be $0.88 less than the regular direct material cost per unit. Profit on the special order is Assume that if X Company accepts the special order, it will lose 1.100 regular sales units. The effect of losing these sales will be to decrease profit by

Explanation / Answer

Given equation can be consolidated as 6.96 (X) + 207414 given 0.88 material cost per unit reduces.Hence equation = 6.08(X) + 207414 As there is enough capacity no need to consider fixed costs. Total cost for 4360 units = 6.08 x 4360 = $26508.8 Hence,Profit on special order = (4360 x 11.88) - 26508.8 = 51796.80 - 26508.80 = $25288 If 1100 regular units are dropped then profit will be decreased as below Variable costs reduced = 6.96(X ) and lost sales = 1100 x Actual sale price (875610/62100) x 1100 - 6.96(1100) = (14.1 x 1100) - 7656 = 15510 - 7656 = $7854 profit will be decreased = $7854

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