Last year, X Company sold 66,000 units of its only product for $18.00 each. Total costs were as follows:
Cost of goods sold | |
Variable | $415,800 |
Fixed | 121,440 |
Selling and administrative | |
Variable | $94,380 |
Fixed | 78,540 |
At the end of the year, a company offered to buy 4,730 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?
7. X Company's marketing manager felt that in order for regular
sales to continue at 66,000 units this year, the company would have
had to reduce the regular selling price this year to $17.62. The
result of this price reduction would have been to reduce X
Company's profits this year 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 $0.86 and $0.27,
respectively, and the rental of special equipment for $2,000. The
combined effect of these changes would have been to reduce the
special order profit by how much?
5 | ||
Variable cost of goods sold | 6.30 | =415800/66000 |
Incremental revenue | 52030 | =4730*11 |
Incremental costs: | ||
Variable cost of goods sold | 29799 | =4730*6.30 |
Total Incremental costs | 29799 | |
Profits increase | 22231 | |
6 | ||
Increase in cost of goods sold | 5345 | =4730*(0.86+0.27) |
Rental of Equipment | 2000 | |
Total decrease in special order profit | 7345 | |
7 | ||
Reduction in Company's Profits | 25080 | =66000*(18-17.62) |
Last year, X Company sold 66,000 units of its only product for $18.00 each. Total costs were as follows: Cost of good...
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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...
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