Question

- Timer Notes evaluate Feedback Print Questions 5, 6, and 7 refer to the following Information Last year, X Company sold 64,000 units of its only product for $17.00 each. Total costs were as follows: Cost of goods sold Variable Fixed Selling and administrative Variable Fixed $391,680 126,080 $83,200 90,890 At the end of the year, a company offered to buy 4,660 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 AnswerTries 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 $0.76 and $0.25, 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 Submit Answer Tries 0/3 7. X Company's marketing manager felt that in order for regular sales to continue at 64,000 units this year, the company would have had to reduce the regular selling price this year to $16.43. The result of this price reduction would have been to reduce X Company's profits this year by Sub Tries 0/3

Answer 1

Since there is spare capacity, no additional fixed costs will be incurred on the special order

Profits would have increased by = 4660*11 – 4660*391680/64000

= $22,740.8

6.Profit will reduce by the amount of extra cost i.e. (0.76+0.25)*4660 + 2000

= $6,706.6

7.Reduction in profit = Reduction in price

= (17-16.43)*64000

= $36,480