Question

Questions 5, 6, and 7 refer to the following information Last year, X Company sold 60,300 units of its only product for $17.00 each. Total costs were as follows: Cost of goods sold Variable $392,553 132,057 Fixed Selling and administrative Variable $89,244 71,757 Fixed At the end of the year, a company offered to buy 4,830 units of the product but only for $12.00 each. X Company had the capacity to produce the additional units, and even though there would have been no additional selling and administrative costs, it rejected the offer. 5. If X Company had accepted the special order, firm profits would have increased by * Tries 0/3 6. X Company's production manager thought that the special order units might have required additional direct material and direct labor costs per unit of $0.78 and $0.25, respectively, and the rental of special equipment for $2,000. The combined effect of these changes would have been to reduce the special order profit by Hem Tries 0/3 7. X Company's marketing manager felt that in order for regular sales to continue at 60,300 units this year, the company would have had to reduce the regular selling price this year to $16.51. The result of this price reduction would have been to reduce X Company's profits this year by DER Tries 0/3

Answer 1

Solution 5:

Variable cost of goods sold per unit = $392,553 / 60300 = $6.51 per unit

If X company accept the special order then profit will increase by = ($12 - $6.51) * 4830 = $26,517

Solution 6:

Reduction in special order profit by = ($0.78 + $0.25) * 4830 + $2,000 = $6,975

Solution 7:

Price reduction would reduce X company profit by = (60300*$0.49) = $29,547