Question

Questions 6, and 7 refer to the following information:

At the end of the year, a company offered to buy 4,740 units of a product from X Company for a special price of $11.00 each instead of the company's regular price of $18.00 each. The following information relates to the 65,000 units of the product that X Company made and sold to its regular customers during the year:

		Per-Unit	Total
Cost of goods sold		$7.55	$490,750
Period costs		2.22	144,300
Total		$9.77	$635,050

Fixed cost of goods sold for the year were $124,150, and fixed period costs were $68,250. Variable period costs include selling commissions equal to 3% of revenue.

6. Profit on the special order is

7. Assume the following two changes for the special order: 1) variable cost of goods sold will decrease by $0.73 per unit, and 2) there will be no selling commissions. What would be the effect of these two changes on the special order profit?

PLEASE ANSWER BOTH

#6 = NOT 20,856

#7 = NOT 5024

Answer 1

6	Computation of Profit on the special order:-
	Computation of Variable Cost of goods sold per unit:-
a	Cost of goods sold	$       490,750
b	Fixed cost of goods sold	$       124,150
c	Variable Cost of goods sold (a-b)	$       366,600
d	Units produced and sold	65000
e	Variable Cost of goods sold per unit (c/d)	$              5.64
	Computation of Variable Period Cost per unit:-
a	Period Cost	$       144,300
b	Fixed Period Cost	$         68,250
c	Variable Period Cost (a-b)	$         76,050
d	Units produced and sold	65000
e	Variable Period Cost per unit (c/d)	$              1.17
	Cost Benefit Analysis of Special Order
		Units	Per Unit	Amount
	Incremental Revenue	4740	$           11.00	$         52,140.00
	Less: Relevant Cost
	Variable Cost of goods sold	4740	$              5.64	$         26,733.60
	Variable Period Cost	4740	$              1.17	$            5,545.80
	Profit on the special order			$         19,860.60
7	Computation of Profit on the special order under changes and effect of changes on the special order profit:-
	Variable Cost of goods sold per unit (5.64-0.73)	$              4.91
	Computation of Variable Period Cost per unit:-
a	Period Cost	$       144,300
b	Fixed Period Cost	$         68,250
c	Variable Period Cost (a-b)	$         76,050
d	Selling Commission (3% of (65000*$18))	$         35,100
e	Variable Period Cost excluding selling commission (c-d)	$         40,950
d	Units produced and sold	65000
e	Variable Period Cost per unit (c/d)	$              0.63
	Cost Benefit Analysis of Special Order
		Units	Per Unit	Amount
	Incremental Revenue	4740	$           11.00	$         52,140.00
	Less: Relevant Cost
	Variable Cost of goods sold	4740	$              4.91	$         23,273.40
	Variable Period Cost	4740	$              0.63	$            2,986.20
	Profit on the special order			$         25,880.40
	Effect on Special order profit:-
a	Profit on the special order under 7			$         25,880.40
b	Profit on the special order under 6			$         19,860.60
c	Increase in profit on special order under 7 (a-b)			$           6,019.80

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