At the end of the year, a company offered to buy 4,650 units of a product from X

Question

At the end of the year, a company offered to buy 4,650 units of a product from X Company for $11.00 each instead of the company's regular price of $18.00 each. The following functional income statement is for the 61,400 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 $133,238, and fixed selling and administrative costs were $63,856. 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 $4,500.

Questions:

1. Profit on the special order would be?

2. 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?

Sales Cost of goods sold Gross margin Selling and administrative costs Profit $1,105,200o 491,814 $613,386 137,536 $475,850

Explanation / Answer

Assuming That Company has spare capacity.

1- Calculation of Profit of Special Order.

2- Sales Commission @ 4% $44208 includded in Selling and Admin. Cost.

Revised Varriable Selling & Admin. Cost per unit= (73680-44208)/61400 unit= $.48 per unit

Increased in Profit = Saving of Sales Commission

= (4650*.$72) =$3348

Production Unit 61400 Total Fixed Varriable Varr.Cost Per Unit $491,814.00 $133,238.00 $358,576.00 $5.84 $137,536.00 $63,856.00 $73,680.00 $1.20

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