At the end of the year, a company offered to buy 4,430 units of a product from X

Question

At the end of the year, a company offered to buy 4,430 units of a product from X Company for $11.00 each instead of the company's regular price of $17.00 each. The following functional income statement is for the 64,200 units of the product that X Company has already made and sold to its regular customers:

Sales $1,091,400

Cost of goods sold 554,046

Gross margin $537,354

Selling and administrative costs 153,438

Profit $383,916

Fixed cost of goods sold for the year was $130,326, and fixed selling and administrative costs were $69,336. The special order product has some unique features that will require additional material costs of $0.85 per unit and the rental of special equipment for $4,500. 5. Profit on the special order would be?

I just need the profit on the special order. I only have ONE try left! Last time I posted it, the answer was wrong.

Thank you!!!!!

Explanation / Answer

For the purpose of evaluating and price a special order only relevant cost are considered. In the costs of production, the variable costs are the relevant costs. So, in the problem, the relevant cost for special order are:

a)The variable cost under the Cost of Goods Sold = (554046 - 130326) / 64200 = $6.60 per unit

b)The variable cost under the selling and administrative costs = (153,438 - 69336) / 64200 = $1.31 per unit

c)The requirement of costs for additional material for the special order = $0.85 per unit

d)The rental of special equipment required for the special order = $4,500

So, Profit on the special order would be = Selling price - Variable costs - relevant Fixed costs = Profit for special order

=> 4430 *11 - (6.60+1.31+0.85) * 4430 - $4500 = $5423.20

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