At the end of the year, a company offered to buy 4,310 units of a product from X
ID: 2575327 • Letter: A
Question
At the end of the year, a company offered to buy 4,310 units of a product from X Company for a special price of $11.00 each instead of the company's regular price of $19.00 each. The following information relates to the 69,100 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 $141,655, and fixed period costs were $78,083. Variable period costs include selling commissions equal to 4% of revenue.
5. Profit on the special order is $14,611
6. Assume the following two changes for the special order: 1) variable cost of goods sold will decrease by $0.79 per unit, and 2) there will be no selling commissions. What will be the effect of these two changes on the special order profit?
For 6, I tried:
6)
Total Cost of goods sold per unit for special order = (6.31-0.79)*4310 = 23791.20
Total period costs = 1.30*4310 - 4%*(11*4310) = 5603 - 1896.40 = 3706.60
Profit on special order = (11*4310) - 23791.20 - 3706.60 = 47410 - 23791.20 - 3706.60 = 19912.20
Effect on special order profit = 19912.20 - 14610.90 = 5301.30 (increase)
and this was wrong.
Per-Unit Total Cost of goods sold $8.36 $577,676 Period costs 2.43 167,913 Total $10.79 $745,589Explanation / Answer
Variable unit cost for cost of goods sold = (577676-141655)/69100= 6.31 Variable unit cost for period costs = (167913-78083)/69100= 1.3 Sales commissions =19*4% = 0.76 6 Incremental revenue 47410 =4310*11 Variable costs 26118.6 =4310*(6.31-0.79+1.3-0.76) Profit on sepcial order 21291.4 Profit on special order will increase by $6680 or $6680.4 (21291.4-14611)
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