Question

Last year, X Company sold 62,400 units of its only product for $17.00 each. Total costs were as follows: Cost of goods sold Variable Fixed Selling and administrative Variable $374,400 114,192 $81,120 89,856 Fixed At the end of the year, a company offered to buy 4,440 units of the product but only for $11.00 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 Submit Answer 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 $0.82 and $0.28, respectively, and the rental of special equipment for $1,000. The combined effect of these changes would have been to reduce the special order profit by Submit Answer Tries 0/3 7. X Company's marketing manager felt that in order for regular sales to continue at 62,400 units this year, the company would have had to reduce the regular selling price this year to $16.48. The result of this price reduction would have been to reduce X Company's profits this year by Submit Answer Tries 0/3

Answer 1

5
Variable cost of goods sold	6.00	=374400/62400
Incremental revenue	48840	=4440*11
Incremental costs:
Variable cost of goods sold	26640	=4440*6
Total Incremental costs	26640
Profits increase	22200
6
Increase in cost of goods sold	4884	=4440*(0.82+0.28)
Rental of Equipment	1000
Total reduction in special order profit	5884
7
Reduction in Company's Profits	32448	=62400*(17-16.48)