Question

t the end of the year, a company offered to buy 4,140 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 65,400 units of the product that X Company has already made and sold to its regular customers:

Sales $1,242,600   

Cost of goods sold 527,778   

Gross margin $714,822   

Selling and administrative costs 147,804   

Profit $567,018   

For the year, fixed cost of goods sold were $119,028, and fixed selling and administrative costs were $79,788. The special order product has some unique features that will require additional material costs of $0.80 per unit and the rental of special equipment for $3,000.

4. Profit on the special order would be

A: $7,733 B: $9,047 C: $10,585 D: $12,385 E: $14,490 F: $16,954

Tries 0/99

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 $0.13. The effect of reducing the selling price will be to decrease firm profits by

A: $2,786 B: $3,482 C: $4,353 D:

Answer 1

4
Variable cost of goods sold	6.25	=(527778-119028)/65400
Variable selling and admin costs	1.04	=(147804-79788)/65400
Revenue	45540	=4140*11
Less: Costs
Variable cost of goods sold	25875	=4140*6.25
Variable selling and admin costs	4306	=4140*1.04
Additional material costs	3312	=4140*0.8
Special Equipment	3000
Total costs	36493
Profit on special order	9047
Option B $9,047 is correct
5
Effect on reducing selling price	8502	=65400*0.13
$8,502 is correct answer