Question

# Questions 4 and 5 refer to the following problem: At the end of the year, a...

Questions 4 and 5 refer to the following problem:

At the end of the year, a company offered to buy 4,610 units of a product from X Company for \$11.00 each instead of the company's regular price of \$19.00 each. The following income statement is for the 67,200 units of the product that X Company has already made and sold to its regular customers:

 Sales \$1,276,800 Cost of goods sold 588,000 Gross margin \$688,800 Selling and administrative costs 157,248 Profit \$531,552

For the year, fixed cost of goods sold were \$124,992, and fixed selling and administrative costs were \$88,032. The special order product has some unique features that will require additional material costs of \$0.81 per unit and the rental of special equipment for \$5,000.

4. Profit on the special order would be

A. \$3992 B.\$4671 C.\$5465 D.\$6394    E\$7481 F.\$8752

5. The marketing manager thinks that if X Company accepts the special order, regular customers will be lost unless the selling price for them is reduced by \$0.18. The effect of reducing the selling price will be to decrease firm profits by

 A: \$2,736 B: \$3,968 C: \$5,753 D: \$8,342 E: \$12,096 F: \$17,539

 4 Variable cost of goods sold 6.89 =(588000-124992)/67200 Variable selling and admin costs 1.03 =(157248-88032)/67200 Revenue 50710 =4610*11 Less: Costs Variable cost of goods sold 31763 =4610*6.89 Variable selling and admin costs 4748 =4610*1.03 Additional material costs 3734 =4610*0.81 Special Equipment 5000 Total costs 45245 Profit on special order 5465 Option C \$5,465 is correct answer 5 Effect on reducing selling price 12096 =67200*0.18 Option E \$12,096 is correct answer