Question

Questions 5, 6, and 7 refer to the folle Last year, X Companr sold 66.500 units of its only product for $18.00 each. Total costs were as Sollowy Cost of goods sald Variable Fixed Selling and administrative Variable S418,950 128.345 s94.430 73.150 Fixed At the end of the year, a company offered to bay 4.690 units of the product but only for S12.00 each X Company had the capacity to prodace the additional units, and even though there would hae been no additional selling and administrative costs, it rejected the offer 8 pt. IX Company had accepted the special order, firm profits would have increased by CO $56.206 EO $118,173 DO 581,499 FO S171,35 BO 538,763 AO $26,733 5. 8 pt 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 $0.77 and S0.26, respectively, and the rental of special equipment for 82.000 The combined effect of these changes would have been to reduce the special order profit by CO $4.734 EO $6,045 DO 85,349 FO $6,831 6. AO $3,707 BO $4,189 8 pt. X Company's marketing manager felt that in order for regular sales to continue at 66,500 units this year, the company WOuld have had to reduce the regular selling price this year to $17.43. The resalt of this price reduction would have been to reduce X Company's profits this year by 7 DO $29,685 EO $33,544 CO $26,270 AO $20,573 BO $23,248 FO $37,905 8 pt The following income statement is for X Company and its only two products A and B: Total Product A Product B $180,300 106,395 $73,905 Sales $91,050 54,630 $36,420 $89.250 S1,765 $37,485 Variable Costs Contribution margin Fixed costs: 35,000 26,100 8-23,615 55,350 33,220 S-14,665 20,350 7,120 S8,950 Avoidable Unavoidable Profit ecause Product B is showing a loss, X Company is considering dropping it and saving its avoidable fixed costs. If in drope oduct B, X Company's new profits will be FO 17,150 AO S-4,121 EO S-12,895 BO S-5,481 CO 8-7,290 DO S-9,695

Answer 1

Solution 5:

Variable cost of goods sold per unit = $418,950 / 66500 = $6.30 per unit

If X company accept the special order then profit will increase by = ($12 - $6.30) * 4690 = $26,733

Hence option A is correct.

Solution 6:

Reduction in special order profit by = ($0.77 + $0.26) * 4690 + $2,000 = $6,831

Hence option F is correct.

Solution 7:

Price reduction would reduce X company profit by = (66500*$0.57) = $37,905

Hence option F is correct

Solution 8:

Net financial advantage (disadvantage) on dropping product B = Saving in fixed costs - Loss of contribution margin

= $35,000 - $37,485 = -$2,485

X company's new profit = -$14,665 - $2,485 = -$17,150

Hence option F is correct.