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:
|Cost of goods sold||643,644|
|Selling and administrative costs||162,108|
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?
|Variable cost of goods sold||7.16||=(643644-153900)/68400|
|Variable selling and admin costs||1.15||=(162108-83448)/68400|
|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|
|Profit on special order||9337|
|Effect on reducing selling price||8892||=68400*0.13|
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