Question

At the end of the year, a company offered to buy 4,390 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 64,300 units of the product that X Company has already made and sold to its regular customers:

Sales $1,221,700

Cost of goods sold  545,907   

Gross margin $675,793

Selling and administrative costs 133,101

Profit $542,692

For the year, variable cost of goods sold were $412,163, and variable selling and administrative costs were $64,300. The special order product has some unique features that will require additional material costs of $0.88 per unit and the rental of special equipment for $3,500.

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 $0.18. The effect of reducing the selling price will be to decrease firm profits by

Answer 1

4
Variable cost of goods sold	6.41	=412163/64300
Variable selling and admin costs	1.00	=64300/64300
Revenue	48290	=4390*11
Less: Costs
Variable cost of goods sold	28140	=4390*6.41
Variable selling and admin costs	4390	=4390*1
Additional material costs	3863	=4390*0.88
Special Equipment	3500
Total costs	39893
Profit on special order	8397
$8,397 is correct answer
5
Effect on reducing selling price	11574	=64300*0.18
$11,574 is correct answer