Question

Questions 4 and 5 refer to the following problem:

At the end of the year, a company offered to buy 4,010 units of a product from X Company for $12.00 each instead of the company's regular price of $17.00 each. The following income statement is for the 65,100 units of the product that X Company has already made and sold to its regular customers:

Sales		$1,106,700
Cost of goods sold		521,451
Gross margin		$585,249
Selling and administrative costs		169,260
Profit		$415,989

For the year, variable cost of goods sold were $375,627, and variable selling and administrative costs were $85,932. 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 $2,000.

4. Profit on the special order would be?

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 $0.10. The effect of reducing the selling price will be to decrease firm profits by?

Answer 1