Question

At the end of the year, a company offered to buy 4,770 units of a product from X Company for $12.00 each instead of the company's regular price of $18.00 each. The following income statement is for the 65,500 units of the product that X Company has already made and sold to its regular customers:

Sales $1,179,000    Cost of goods sold    598,015    Gross margin $580,985    Selling and administrative costs      161,130    Profit $419,855  

For the year, fixed cost of goods sold were $148,030, and fixed selling and administrative costs were $80,565. The special order product has some unique features that will require additional material costs of $0.71 per unit and the rental of special equipment for $5,000.

4. Profit on the special order would be

A: $5,776 B: $7,681 C: $10,216 D: $13,588 E: $18,072 F: $24,035

Answer 1

	Variable cost per unit
	variable cost of goods sold			(598015-148030)/65500=			6.87
	variable selling and adm			(161,130-80565)/65500=			1.23
	on special order only variable cost and special cost will be incurred
	sales				12
	less variable cost
	cost of goods sold			6.87
	variable selling			1.23
	addittional material cost			0.71	8.81
	contribution				3.19
	total contribution		(3.19*4770)=		15216.3
	rent of sepcial equipment				-5000
	profit on special oder				10216
	answer	option c
		10216