Last year, X Company sold 62,500 units of its only product for $18.00 each. Total costs were as follows:
Cost of goods sold | |
Variable | $443,125 |
Fixed | 130,000 |
Selling and administrative | |
Variable | $90,000 |
Fixed | 65,625 |
At the end of the year, a company offered to buy 4,680 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?
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 $0.78 and $0.21, respectively, and the rental of special equipment for $1,500. The combined effect of these changes would have been to reduce the special order profit by?
7. X Company's marketing manager felt that in order for regular sales to continue at 62,500 units this year, the company would have had to reduce the regular selling price this year to $17.43. The result of this price reduction would have been to reduce X Company's profits this year by?
Solution 5:
Variable cost of goods sold per unit = $443125 / 62500 = $7.09 per
unit
If X company accept the special order then profit will increase by
= ($11 - $7.09) * 4680 = $18,299
Solution 6:
Reduction in special order profit by = ($0.78 + $0.21) * 4680 +
$1,500 = $6,133
Solution 7:
Price reduction would reduce X company profit by = 62500*($18 -
$17.43) = $35,625
Last year, X Company sold 62,500 units of its only product for $18.00 each. Total costs...
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Variable
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Fixed
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Selling and administrative
Variable
$86,966
Fixed
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produce the additional units, and even though there would have been
no additional selling and administrative costs, it rejected...
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At the end of the year, a company offered to buy 4,780 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 the
offer.
5. If X Company had accepted the special order, firm profits would
have...
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