Question
Near the end of 2020, X Company had produced and sold 62,800 units of its only product. Costs for these units were: Total Per-Unit Direct
Near the end of 2020, X Company had produced and sold 62,800 units of its only product. Costs for these units were:
| Total | Per-Unit |
Direct materials | $94,200 | $1.50 |
Direct labor | 94,200 | 1.50 |
Variable overhead | 157,000 | 2.50 |
Fixed overhead | 119,320 | 1.90 |
Variable selling and administration | 83,524 | 1.33 |
Fixed selling and administration | 62,800 | 1.00 |
Total | $611,044 | $9.73 |
Just before the year ended, a company offered to buy 4,430 units for $12.64 each. X Company had the capacity to produce the additional 4,430 units, but because the special order product was slightly different than the regular product, direct material costs were expected to increase by $0.20 per unit, and some special equipment would have to be rented for a total of $19,000.
4. What would profit have been on the special order?
A 3,654
B 4,275
C 5,002
D 5,852
E 28,343
F 32,028
5.
Assume that if X Company had accepted the special order, it would have had to lower the selling price of its regular product to prevent the loss of regular customers. The price of its regular product is normally set at 20% above total manufacturing cost per unit, but it would have to reduce it to $8.37 per unit. The effect of lowering the selling price would have been to decrease company profits by
X Company no longer has the space necessary to produce all of its parts. A company has offered to supply one of X Company's parts for $25.25 per unit. This year, production was 11,500 units; next year, production is expected to be 14,150 units. Per-unit production costs for the part this year were:
Materials | $10.72 |
Direct labor | 8.05 |
Variable overhead | 5.95 |
Fixed overhead | 3.03 |
Total | $27.75 |
$27,876 of X Company's fixed overhead cannot be avoided even if it buys the part. In addition, if X Company buys the part, it will be able to rent some equipment that will no longer be needed, to a company for $3,250.
X Company is uncertain about its 14,150 unit production estimate for next year. At what level of production would X Company be indifferent between making and buying the part next year?
A 17,384
B 19,643
C 22,197
D 25,083
E 28,343
F 32,028
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