At the end of the year, a company offered to buy 4,320 units of a product from X

Question

At the end of the year, a company offered to buy 4,320 units of a product from X Company for $12.00 ench instead of the company's regular price of $19.00 cach. The following functional income statement is for the 63,100 units of the product that X Company has already made and sold to its regular customers: Fixed cost of goods sold for the year was $118,628, and fixed selling and administrative costs were $63,731. The special order product has some unique features that will require additional material costs of $0.75 per unit and the rental of special equipment for $5,000. Profit on the special order would be 5. A $3,313 B $4,804 C $6,966 D $10,101 E $14,647 F $21, 238 Assume the following fact: regular variable selling and administrative costs includes sales commissions equal to 2% of sales, but there will be no sales commisation on the special order. This will cause the special order profit to increase by 6. A $1,037 B $1,642 C $15,144 D $23,978 E $30,107 F $441,069

Explanation / Answer

All Amounts in $ 5. Existing Order Details (cost per unit) Cost of Goods Sold 441069 Cost of Goods Sold per unit 6.99 Selling and Administrative Costs 94019 Selling and Administrative Costs per unit 1.49 Special Order Details Sale price per unit 12 Cost of Goods Sold per unit (Variable) 7.74 Contribution Margin 4.26 Selling and Administrative Costs (Variable) 1.49 Net Contribution per unit (Only Variable) 2.77 No. of units for which order placed 4320 Total Contribution before fixed expenses 11966.4 Rental of Special equipment 5000 Net Profit on order 6966.4 Option C in the solution for Part 5 6. Selling and Administrative Expenses (Variable) will reduce by 2% of original sales value viz. $ 19, which will be $ 0.38. The special order profit will thus increase by 4,320 units X $ 0.38 = 1641.6 $ The answer is Option B in the solution for Part 6

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