Question

Questions b, b, and I war X Company sold 67.600 units of its only product for $18.00 each. Total costs were as follows: Cost of goods sold Variable 5460,636 Fixed 147,368 Selling and administrative Variable 91,936 Fixed 99,372 At the end of the year, a company offered to buy 4,560 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 8 pts. Ir X Company had accepted the special order, firm profits would have increased by 5. AO $5,813 BO 87,266 CO 89,082 DO $11,353 EO $14,191 FO $17,738 8pc 16 X Company's production manager thought that the special order units might have required additional direct material and direct labor costs per unit of $0.88 and 80.27, respectively, and the rental of special equipment for $2,000. The combines effect of these changes would have been to reduce the special order profit by 6. AO $5,673 BO $6,411 CO 87,244 DO $8,186 EO 89,250 FO $10,452 8 pt 7. X Company's marketing manager felt that in order for regular sales to continue at 67,600 units this year, the compa would have had to reduce the regular selling price this year to $17.52. The result of this price reduction would have been reduce X Company's profits this year by 7. AO 87,340 BO $10,643 CO $15,433 DO $22,378 EO $32,448 FO $47,050 8pt The following income statement is for X Company and its only two products - A and B: Total Product A Product B Sales $183,490 $89,560 $93,930 Variable Costs 100,832 51.049 49,783 Contribution margin $82.658 $38.511 $44,147 Fixed costs: Avoidable 61,820 23,610 38,210 Unavoidable 31.330 6,080 25,250 Profit $-10,492 $8,821 $-19,313 ecause Product B is showing a loss, X Company is considering dropping it and saving its avoidable fixed costs. If it roduct B, X Company's new profits will be A 8-8,767 B 8-10,258 CO 8-12,002 DO S-14,042 EO 8-16,429 FO $-19,222

Answer 1

Solution Variable cost of goods sold per unit ($480,636 / 67,600 units) Fixed cost of goods sold Variable selling and admin. Exp. per unit ($91,936 / 67,600 units) Fixed selling and admin. Expense $7.11 $147,368 $1.36 $99,372 Question #5 We shall prepare the incremental analysis to calculate the increase (decrease) in the firm's profit, as under: Incremental Analysis Incremental Sales Revenue ($11 x 4,560) Incremental Variable cost of goods sold ($7.11 x 4,560) Incremental Contribution margin Incremental fixed cost Incremental net income (loss) $50,160 ($32,422) $17,738 $17,738 If X company had accepted the special order, firm profits would have increased by $17,738. The correct option is, F. $17,738 Question #6 Additional Direct material cost ($0.88 x 4,560) Additional Direct labor cost ($0.27 x 4,560) Rental of special equipment Combined effect of additional cost on special order profit $4,013 $1,231 $2,000 $7,244 The special order profit shall reduce by $7,244. The correct option is, C. $7,244

Question #7 Decrease in selling price per unit ($18 - $17.52) Number of units sold Effect of price reduction on Company's profit this year ($0.48 x 67,600) $0.48 67,600 $32,448 The profit this year would have been reduce by $32,448. The correct option is, E. $32,448 Question #8 We shall prepare the incremental analysis to analyze the effect of dropping Product B on Company's profit. Incremental Analysis Incremental Sales Revenue Incremental Variable cost Incremental Contribution margin Incremental avoidable fixed cost Incremental unavoidable fixed cost Incremental net income (loss) ($93,930) $49,783 ($44,147) $38,210 ($5,937) If the X Company drops product B, its losses shall increase by $5,937. X Company's new profits (loss) (-10,492-5,937) ($16,429) The correct option is, E. $-16,429