Question

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 4,010 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 $0.76 per unit, direct labor costs on the special order would have decreased by $0.40 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 $0.36. 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

Answer 1

5)IF THE COMPANY ACCEPTS THE SPECIAL ORDER

THE PROFIT INCREESED BY (11-6.91)*4010UNITS=16,400$

Why because if a company has additional capacity to produce special order it should recover only its veriable cost and expected profit margin if any
but the minnimum selling price = veriable cost per unit
no need to recover fixed cost because even if there is no special order there should be fixed cost
But hear my assumption is for special order no need to spent selling expense thats why not considerd

6)if veriable cost per unit changes

so cost of goods sold per unit=
6.91+0.76-0.4+1500/4010=7.64$

profi on special order reduces by =(7.64-6.91)*4010units=2,927$
Because cost of goods sold per unit increeses

7)if selling price reduces

profit decreses by=0.36$*60,500units=21,780$

hear no change in cost per unit only selling price reduces

note:
The problem is solved based on the assumption that selling and adminstrative cost not incuured for special order