Question

# At the end of the year, a company offered to buy 4,390 units of a product...

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

 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

#### Earn Coins

Coins can be redeemed for fabulous gifts.