Please show work! X Company produces and sells 66,500 units of its regular produ

Question

Please show work!

X Company produces and sells 66,500 units of its regular product each year for $15.00 each. The following cost information relates to this production Total $164,920 123,025 210,140 146,965 69,160 91,105 Per-Unit $2.48 1.85 3.16 2.21 1.04 1.37 Direct materials Direct labor (all variable Variable overhead Fixed overhend Variable selling Fixed selling A company has offered to buy 4,110 units for $11.82 each. Because the special order product is slightly different than the regular product, direct material variable costs will increase by $0.20 per unit, and some special equipment will have to be rented at a cost of $17,000. 8 pth Proft on the special order is 1. AO 3-1.300 ??$-3,479 cO $-2,905 DO 8-2,256 EO ss,151 FO$6,505 8 pl . Assume that if X Company accepts the special order, regular sales will fall by 1,100 units. Independent of # 1, the efect of the fall in regular sales will be to decrease company profit by 2 AO $5,694 BO $7,117 CO $8,896 DO $11,120EO $13,900 FO $17,375

Explanation / Answer

Answer:-

1. Profit from special Order :-

Lets assume that company is utilizing it regular capacity of 66500 units so, we will not charge fixed expediture to the special order.

as per relevant costing method:-

Profit from special order = Sales Price - variable cost - avoidable fixed cost

1. Sales price = $ 11.82 * 4110 Units = $ 48,580.20

2. variable costs :-

Direct Material = $ 2.48

Direct Labour = $ 1.85

Variable Overhead = $ 3.16

Variable selling Overhead = $ 1.04

Total = 2.48 + 1.85 + 3.16 + 1.04 = $8 .53

Adjustment 1

Increase in Material Cost = $ 0.20

Therefore total Variable cost = 8.53 + 0.20 = $ 8.73

Variable cost = 8.73 * 4110 = $ 35,880.30

3. Avoidable fixed costs = $ 17,000 ( can be avoided if not accepted such special order )

so Profit = 48,580.20 - 35,880.30 - 17,000 = $ - 4300.10 Rounded to whole number (- $ 4300)

Loss from such special order = ($4300) Option (A) answer.

2. Effect of the fall in regular sales will be decrease company profit by :

As per relevant costing method

Contribution from Regular sales =  

sales price - variable cost

saless price = $ 15

Variable cost as calculated above = $ 8.53

Contribution = $ 6.47

loss from drop of such sales = 1100 * $6.47 = $ 7,117 Option (b) answer.

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