Question

In: Accounting

The following cost functions apply to X Company's regular production and sales during the year:   Cost...

The following cost functions apply to X Company's regular production and sales during the year:

  Cost of goods sold:   $6.57 (X) + $127,397

  Selling and administrative expenses:   $1.29 (X) + $84,709

where X is the number of units produced and sold. During the year, X Company sold 66,700 units for $18.00 each. At the end of the year, a company offered to buy 4,750 units but was only willing to pay $12.00 each. X Company had the capacity to produce the additional 4,750 units.

5. If X Company had accepted the special order, firm profits would have increased by ?

6. Consider the following three changes. Direct material costs on the special order would have increased by $0.74 per unit, direct labor costs on the special order would have decreased by $0.32 per unit, and X Company would have had to rent special equipment for $1,500. Independent of your answer to (5), the effect of these changes would have been to reduce profit on the special order by ?

7. In order to retain all of X Company's regular customers, it would have had to reduce the regular selling price by $0.39. If the selling price were reduced and next year's unit sales turned out to be the same as this year's sales, firm profits would have fallen by ?

Solutions

Expert Solution

Answer

Cost of Goods Sold = $6.57 (X) + $127,397

Selling and administrative expenses = $1.29 (X) + $84,709

While making the decision we will ignore the Fixed Cost, as Fixed Cost will remain same whether we accept this order or not, so it will not be considered while calculating this.

5.

Total Variable Cost = Variable Part of COGS + Variable Part of Selling and Adm. Expenses

= $6.57 + 1.29

Total Variable Cost = $7.86 per Unit

So the Special offer is giving $12 per unit, so we should accept this offer.

Profit will increase by = Sales of New order – Variable Cost of new order

= ($12 * 4,750) - ($7.86 * 4,750)

Profit will increase by = $19,665

6.

Increase in Variable Cost = Increase in D. Material Cost - Decrease in D. Labor Cost

Increase in Variable Cost = $0.42 per unit (0.74 – 0.32)

And there is an rent of $1,500, so profit will Decrease by Increase in Variable Cost plus Rent

Decrease in Profit = (Increase in Variable Cost * 4,750Units) + Rent

Decrease in Profit = $3,495 {($0.42 * 4,750Units) + $1,500}

7.

So there is a decrease in Selling price it means the Profit will also decrease by this decreased Selling price.

Decrease in Price = $0.39

Units Sold = 66,700 Units

Decrease in Profit = Decrease in Price * Units Sold

Decrease in Profit =$26,013 ($0.39 * 66,700 Units)

Dear Student, if u have any query, plz feel free to reach me.


Related Solutions

The following cost functions apply to X Company's regular production and sales during the year:   Cost...
The following cost functions apply to X Company's regular production and sales during the year:   Cost of goods sold:   $5.41 (X) + $122,760   Selling and administrative expenses:   $1.43 (X) + $67,580 where X is the number of units produced and sold. During the year, X Company sold 62,000 units for $17.00 each. At the end of the year, a company offered to buy 4,230 units but was only willing to pay $11.00 each. X Company had the capacity to produce the additional...
The following cost functions apply to X Company's regular production and sales during the year: Cost...
The following cost functions apply to X Company's regular production and sales during the year: Cost of goods sold: $7.00 (X) + $120,204 Selling and administrative expenses: $1.25 (X) + $73,776 where X is the number of units produced and sold. During the year, X Company sold 63,600 units for $18.00 each. At the end of the year, a company offered to buy 4,820 units but was only willing to pay $11.00 each. X Company had the capacity to produce...
The following cost functions apply to X Company's regular production and sales during the year:   Cost...
The following cost functions apply to X Company's regular production and sales during the year:   Cost of goods sold:   $6.91 (X) + $134,310   Selling and administrative expenses:   $1.38 (X) + $64,130 where X is the number of units produced and sold. During the year, X Company sold 60,500 units for $19.00 each. At the end of the year, a company offered to buy 4,010 units but was only willing to pay $11.00 each. X Company had the capacity to produce the additional...
The following cost functions apply to X Company's regular production and sales during the year:   Cost...
The following cost functions apply to X Company's regular production and sales during the year:   Cost of goods sold:   $6.05 (X) + $132,153   Selling and administrative expenses:   $1.05 (X) + $76,167 where X is the number of units produced and sold. During the year, X Company sold 65,100 units for $19.00 each. At the end of the year, a company offered to buy 4,980 units but was only willing to pay $12.00 each. X Company had the capacity to produce the additional...
The following cost functions apply to X Company's regular production and sales during the year:   Cost...
The following cost functions apply to X Company's regular production and sales during the year:   Cost of goods sold:   $6.05 (X) + $131,670   Selling and administrative expenses:   $1.02 (X) + $81,130 where X is the number of units produced and sold. During the year, X Company sold 66,500 units for $17.00 each. At the end of the year, a company offered to buy 4,620 units but was only willing to pay $12.00 each. X Company had the capacity to produce the additional...
The following cost functions apply to X Company's regular production and sales during the year: Cost...
The following cost functions apply to X Company's regular production and sales during the year: Cost of goods sold: $6.05 (X) + $146,520 Selling and administrative expenses: $1.05 (X) + $69,960 where X is the number of units produced and sold. During the year, X Company sold 66,000 units for $18.00 each. At the end of the year, a company offered to buy 4,460 units but was only willing to pay $12.00 each. X Company had the capacity to produce...
The production cost of x units of a product during a month is x ^ 2...
The production cost of x units of a product during a month is x ^ 2 dollars. If you want to produce at least 80 units over the next three months, formulate and solve a nonlinear programming model to determine the most economical way to produce.
During Burns Company's first year of operations, credit sales totaled $168,000 and collections on credit sales...
During Burns Company's first year of operations, credit sales totaled $168,000 and collections on credit sales totaled $119,000. Burns estimates that bad debt losses will be 1.0% of credit sales. By year-end, Burns had written off $440 of specific accounts as uncollectible. Required: 1. Please help me prepare all appropriate journal entries relative to uncollectible accounts and bad debt expense. 2. I have too Show the year-end balance sheet presentation for accounts receivable. Thanks!
Describe the connection between production and cost functions.
Describe the connection between production and cost functions.
Discuss the production and cost functions of a typical firm.
Discuss the production and cost functions of a typical firm.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT