Question

Please answer ALL of the questions!

At the end of the year, a company offered to buy 4,100 units of a product from X Company for a special price of $12.00 each instead of the company's regular price of $18.00 each. The following information relates to the 68,400 units of the product that X Company made and sold to its regular customers during the year:

		Per-Unit	Total
Cost of goods sold		$9.43	$645,012
Period costs		2.60	177,840
Total		$12.03	$822,852

Fixed cost of goods sold for the year were $151,848, and fixed period costs were $78,660. Variable period costs include selling commissions equal to 4% of revenue.

6. Profit on the special order is

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7. Assume the following two changes for the special order: 1) variable cost of goods sold will decrease by $0.87 per unit, and 2) there will be no selling commissions. What would be the effect of these two changes on the special order profit?

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8. There is concern that regular customers will find out about the special order, and X Company's regular sales will fall by 700 units. As a result of these lost sales, X Company's profits would fall by

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Answer 1

6. Profit on the special order is

Total cost of goods sold	$645012
Less Fixed Cost	$151848
Variable cost of goods sold	$493164
Variable cost of goods sold per unit	$7.21
Total Selling and Administrative	$177840
Less Fixed Cost	$78660
Variable Selling and Administrative	$99180
Variable Selling and Administrative	1.45

Sales 4100*12		$49200
Cost of goods sold 4100 units *7.21	29561
Variable Selling and Administrative 4100*1.45	5945	$35506
Profit on the special order		$13694

7. Assume the following two changes for the special order: 1) variable cost of goods sold will decrease by $0.87 per unit, and 2) there will be no selling commissions. What would be the effect of these two changes on the special order profit?

Sales 4100*12		49200
Cost of goods sold 4100 units *(7.21-.87)	25994
Variable Selling and Administrative 4100*(1.45-18*4%)	2993	28987
Profit on the special order		20213

Effect on the Profit will $20213-$13694=$6519

8. There is concern that regular customers will find out about the special order, and X Company's regular sales

Sales Revenue Lost $ 700*18		$ 12,600.00
Less Variable Cost
Cost of goods sold 700*7.21	$ 5,047.00
Selling and Administrative 700*1.45	$ 1,015.00	$    6,062.00
Company's profits would fall by		$    6,538.00