At the end of the year, X Company had sold 69,900 units of its regular product.
ID: 2570042 • Letter: A
Question
At the end of the year, X Company had sold 69,900 units of its regular product. A company offered to buy 4,190 units for $11.86 each. There was enough capacity to produce these additional units. The following income statement is for X Company's regular operalions: Total Per- Unit $929,670$13.30 Revenue Cost of goods sold $607,431 $8.69 Selling and ad $183,138 2.62 ministrative expens0S Profit 8139,101 1.99 Additional information reveals that fixed cost of goods sold were 146.790 and fixed selling and administrative expenses were $86,676. Also, because the special order product is slightly different than the regular product, direct material cost per unit will bc $0.86 less than the rogular diroct mato- rial cost per unit. 5. Proft on the special order is Tries 0/3 6. Assume that regular variable selling and administrativie expenses include sales commissions of 3% of dollar sales that will not be incurred on the special order. As a re, special order variable selling and administrative expenses per unit will be Tries 0/3 7. Assume that if X Company accepts the special order, it will have to lower the selling price on each of its regular units to $12.95. The effect of lowering the selling price wi be to decrease profit by Tries 0/3Explanation / Answer
Workings:
Units sold (regular)=929670/13.3=69900units
Since only variable cost is relevant while making decision as fixed cost remain constant within the relevant range.so whether special offer is accepted or not fixed cost continue to incur thus irrelevant.
Variable cost of goods sold =607431-146790 =460641
variable cost of sales(regular)=460641/69900=$ 6.59
Variable cost for special offer = 6.59- .86 =$ 5.73
Variable selling = 183138-86676=96462
variable selling cost per unit = 96462/69900=$ 1.38
5)Profit on special offer =unit sold [price-variable cost of sales-variable selling cost]
=4190[11.86-5.73-1.38]
= 4190 *4.75
= $ 19902.5
6)sales commission : 11.86*.03 =$ .3558
Special order variable selling and administrationexpense per unit = 1.38 -.3558 =$ 1.0242 per unit
7)Decrease in selling price =13.30-12.95=.35 per unit
decrease in profit of regular sales = .35*69900= $ 24465
Total profit/(loss)=Profit from special offer -loss from regular sales
= 19902.5-24465
= -4562.5
If the seling price is reduced ,profit will decrease by $ 4562.5
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