Question

At the end of the year, a company offered to buy 4,140 units of a product from X Company for $12.00 each instead of the company's regular price of $19.00 each. The following income statement is for the 68,400 units of the product that X Company has already made and sold to its regular customers:

Sales		$1,299,600
Cost of goods sold		643,644
Gross margin		$655,956
Selling and administrative costs		162,108
Profit		$493,848

For the year, fixed cost of goods sold were $153,900, and fixed selling and administrative costs were $83,448. The special order product has some unique features that will require additional material costs of $0.71 per unit and the rental of special equipment for $3,000.

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

Answer 1

4
Variable cost of goods sold	7.16	=(643644-153900)/68400
Variable selling and admin costs	1.15	=(162108-83448)/68400
Revenue	49680	=4140*12
Less: Costs
Variable cost of goods sold	29642	=4140*7.16
Variable selling and admin costs	4761	=4140*1.15
Additional material costs	2939	=4140*0.71
Special Equipment	3000
Total costs	40343
Profit on special order	9337

5
Effect on reducing selling price	8892	=68400*0.13