Last year, X Company sold 64,900 units of its only product for $18.00 each. Total costs were as follows:
Cost of goods sold | |
Variable | $425,095 |
Fixed | 145,376 |
Selling and administrative | |
Variable | $86,966 |
Fixed | 79,827 |
At the end of the year, a company offered to buy 4,170 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 ____________________
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 $0.90 and $0.22, respectively, and the rental of special equipment for $1,500. The combined effect of these changes would have been to reduce the special order profit by _______
7. X Company's marketing manager felt that in order for regular
sales to continue at 64,900 units this year, the company would have
had to reduce the regular selling price this year to $17.41. The
result of this price reduction would have been to reduce X
Company's profits this year by _____________
Note: All answers have been rounded off to 2 decimal places in the absence of specific instructions regarding the same. Kindly round off as required.
5. If X Company had accepted the special order, firm profits would have increased by $22726.50.
Selling price per unit for special order | 12.00 |
Less: Variable expenses | |
Cost of goods sold ($425095/64900) | 6.55 |
Contribution margin per unit | 5.45 |
Number of units of special order | 4170 |
Profit on special order $ | 22726.50 |
6. The combined effect of these changes would have been to reduce the special order profit by $6170.40
Increase in direct materials cost (4170 x $0.90) | 3753 |
Increase in direct labor cost (4170 x $0.22) | 917.40 |
Rental of special equipment | 1500 |
Total increase in cost of special order $ | 6170.40 |
7. The result of this price reduction would have been to reduce X Company's profits this year by $38291.
Reduction in profit = 64900 x ($18.00 - $17.41) = $64900 x $0.59 = $38291
Last year, X Company sold 64,900 units of its only product for $18.00 each. Total costs...
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Last year, X Company sold 64,300 units of its only product for $18.00 each. Total costs were as follows: Cost of goods sold Variable $412,806 Fixed 145,961 Selling and administrative Variable $84,876 Fixed 67,515 At the end of the year, a company offered to buy 4,870 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...
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Last year, X Company sold 67,200 units of its only product for
$17.00 each. Total costs were as follows:
At the end of the year, a company offered to buy 4,780 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...
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