At the end of the year, a company offered to buy 4,590 units of a product from X
ID: 2574198 • Letter: A
Question
At the end of the year, a company offered to buy 4,590 units of a product from X Company for a special price of $11.00 each instead of the company's regular price of $17.00 each. The following information relates to the 61,000 units of the product that X Company made and sold to its regular customers during the year:
Fixed cost of goods sold for the year were $135,420, and fixed period costs were $64,050. Variable period costs include selling commissions equal to 4% of revenue.
5. Profit on the special order is
6. Assume the following two changes for the special order: 1) variable cost of goods sold will decrease by $0.73 per unit, and 2) there will be no selling commissions. What will be the effect of these two changes on the special order profit?
Per-Unit Total Cost of goods sold $8.23 $502,030 Period costs 2.28 139,080 Total $10.51 $641,110Explanation / Answer
Workings:
Fixed cost of goods sold, and fixed period costs are not considered since they remain unaffected by the acceptance or rejection of the special order and are hence irrelevant.
Selling commissions should not be considered since the customer has approached X Company directly so there would be no selling commissions payable on the special order.
Variable Period costs = Total period costs $139080 - Fixed period costs $64050 = $75030
Relevant variable period costs = Variable period costs $75030 - Selling commission (61000 x $17 x 4%) = $75030 - $41480 = $33550
Relevant variable period costs per unit = $33550 / 61000 units = $0.55
With no selling commission, the relevant variable period costs = $75030
Relevant variable period costs per unit = $75030 / 61000 units = $1.23
5 Profit on the special order is: $20379.60 6 Special order profit will increase by $229.50Related Questions
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