Question 1: At the end of the year, a company offered to buy 4,570 units of a pr

Question

Question 1: At the end of the year, a company offered to buy 4,570 units of a product from X Company for $12.00 each instead of the company's regular price of $19.00 each. The following functional income statement is for the 64,500 units of the product that X Company has already made and sold to its regular customers:

Sales

$1,225,500   

Cost of goods sold

   521,805   

Gross margin

$703,695   

Selling and administrative costs

     153,510   

Profit

$550,185   

Fixed cost of goods sold for the year was $130,935, and fixed selling and administrative costs were $72,885. The special order product has some unique features that will require additional material costs of $0.90 per unit and the rental of special equipment for $3,000.

Assume the following fact: regular variable selling and administrative costs include sales commissions equal to 4% of sales, but there will be no sales commissions on the special order. This will cause the special order profit to increase by?

Please Show Work

Sales

$1,225,500   

Cost of goods sold

   521,805   

Gross margin

$703,695   

Selling and administrative costs

     153,510   

Profit

$550,185   

Explanation / Answer

Special Order

Particulars Per Unit 64500 Units Sales 19 1225500 Less: Variable cost Cost of Goods Sold (521805-130935) 6.06 390870 Sales commission (Sales*4%) 0.76 49020 Other Selling and administrative cost (153510-72885-49020) 0.49 31605 Contribution 11.69 754005 Less: Fixed Cost Cost of Goods Sold 130935 Selling and administrative cost 72885 Net Operating Income 550185

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