Question

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

Answer 1

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