Questions 5 and 6 refer to the following problem: At the end of the year, a comp
ID: 2463643 • Letter: Q
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Questions 5 and 6 refer to the following problem: At the end of the year, a company offered to buy 4,240 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 67,900 units of the product that X Company has already made and sold to its regular customers: Sales $1,222,200 Cost of goods sold 613,137 Gross margin $609,063 Selling and administrative costs 188,083 Profit $420,980 Fixed cost of goods sold for the year was $139,874, and fixed selling and administrative costs were $97,097. The special order product has some unique features that will require additional material costs of $0.71 per unit and the rental of special equipment for $5,000 5. Profit on the special order would be 6. Assume the following fact: regular variable selling and administrative costs include sales commissions equal to 3% of sales, but there will be no sales commissions on the special order. This will cause the special order profit to increase byExplanation / Answer
The Varaible cost of goods sold = (613137-139874) = 473,263 and per unit varaible cost of goods sold = 473263/67900 = $ 6.97
The Varaible Selling and administrative costs = (188083-97097) = 90,986 and per unit selling and adminstrative cost = 90,986 / 67900 = $ 1.34
Therefore, for special order:
Cost of goods sold per unit = $ 6.97
selling and admin cost per unit = $ 1.34
Additionla material cost = $ 0.71
Total vairable cost = (9.02 * 4240) = $ 38,244.80
Rental of special equipment = $ 5,000
Total cost of special order = 38244.8 + 5000 = $ 43,244.80
Sales value = (11*4240) = $ 46,640
Therefore, Profit on the special order would be $ 3,395.20
6. Sales commission 3% on special order value = 3% * 46,640 = $ 1,399.20 and the special order profit increased by $ 1,399.20 if there is no sales commission on special order.
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