Question

At the end of the year, a company offered to buy 5,000 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 68,400 units of the product that X Company made and sold to its regular customers during the year:

		Per-Unit	Total
Cost of goods sold		$8.91	$609,444
Period costs		2.15	147,060
Total		$11.06	$756,504

Fixed cost of goods sold for the year were $126,540, and fixed period costs were $77,292. Variable period costs include selling commissions equal to 3% of revenue.

6. Profit on the special order is

7. Assume the following two changes for the special order: 1) variable cost of goods sold will increase by $0.77 per unit, and 2) there will be no selling commissions. What would be the effect of these two changes on the special order profit?

8. There is concern that regular customers will find out about the special order, and X Company's regular sales will fall by 600 units. As a result of these lost sales, X Company's profits would fall by ?

Answer 1

Hi

Let me know in case you face any issue:

Solution: Answer are highlighted in yellow: 6) Particulars Amount $55,000 Incremental sales Incremental cost: Variable cost of goods sold (609444-126540)/68400 5000 Variable period cost (5000*11) 35300 (147060-77292)/68400 *5000 5100 $ 40,400 14,600 Profit on Special order 7) Particulars Amount Variable cost of goods sold 0.77*5000) Variable period cost Change on special order profit 3850 (19*396) *5000 2850 $ -1,000 8) Particulars Amount $ 11,400 Loss of regular sales Incremental cost: Variable cost of goods sold Variable period cost (600 19) (609444-126540)/68400*600 (147060-77292)/68400 600 4236 612 $ 4,848 $ 6,552 Profit will fall by