Question

Last year, X Company sold 61,900 units of its only product for $19.00 each. Total costs were as follows: Cost of goods sold Variable S412,254 137,418 Fixed Selling and administrative Variable Fixed $77,375 76,756 At the end of the year, a company offered to buy 4,360 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. 8 pt 5. If X Company had accepted the special order, firm profits would have increased by FO $22,139 EO $18,922 AO $10,098 BO $11,815 CO S13,823 DO $16,173 5. 8 pt 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 $0.74 and $0.20, 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 FO 89,019 EO S6,781 AO $2,167 CO $3,833 DO $5,098 6. BO $2,882 8 pt 7. X Company's marketing manager felt that in order for regular sales to continue at 61,900 units this year, the company would have had to reduce the regular selling price this year to $18.50. The result of this price reduction would have been to reduce X Company's profits this year by EO $42,367 FO $49,570 CO 830,950 DO $36,212 7. AO $22,609 BO 826,453

Answer 1

5
Variable cost of goods sold	6.66	=412254/61900
Incremental revenue	47960	=4360*11
Incremental costs:
Variable cost of goods sold	29038	=4360*6.66
Total Incremental costs	29038
Profits increase	18922
Option E $18,922 is correct
6
Increase in cost of goods sold	4098	=4360*(0.74+0.20)
Rental of Equipment	1000
Total effect on profit	5098
Option D $5,098 is correct
7
Reduction in Profits	30950	=61900*(19-18.50)
Option C $30,950 is correct