Question

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At the end of the year, a company offered to buy 4,930 units of a product from X Company for a special price of $11.00 each instead of the company's regular price of $18.00 each. The following information relates to the 65,900 units of the product that X Company made and sold to its regular customers during the year: Per-Unit Total Cost of goods sold Period costs Total $8.64$569,376 191,110 $11.54 $760,486 2.90 Fixed cost of goods sold for the year were $143,003, and fixed period costs were $94,237. Variable period costs include selling commissions equal to 3% of revenue. 6. Profit on the special order is 22331.4 Submit Answer Incorrect. Tries 1/3 Previous Tries 7. Assume the following two changes for the special order: 1) variable cost of goods sold will increase by $0.76 per unit, and 2) there will be no selling commissions. What would be the effect of these two changes on the special order profit? Submit Answer Tries 0/3 8. There is concern that regular customers will find out about the special order, and X Company's regular sales will fall by 750 units. As a result of these lost sales, X Company"s profits would fall by Submit Answer Tries 0/3

Answer 1

Solution 6:

Variable cost of goods sold per unit = ($569376 - $143003) / 65900 = $6.47 per unit

Variable period cost per unit = ($191110 - $94237) / 65900 = $1.47 per unit

Profit on special order = Contribution margin per unit of special order * Nos of units sold

= ($11 - $6.47 - $1.47) * 4930 = $15085.80

Solution 7:

Increase in Variable cost of goods sold per unit = $0.76

Decrease in variable period cost per unit = $18*3% = 0.54

Effect of these changes on special order profit = ($0.54 - $0.76) * 4930 = - $1,084.60 Decrease in special order profit

Solution 8:

Contribution margin per unit on regular orders = $18 - $6.47 - $1.47 = $10.06 per unit

If regular sales fall by 750 units then company's profit will fall by = 750 * $10.06= $7,545