Question

At the end of the year, a company offered to buy 4,640 units of a product from X Company for $12.00 each instead of the company's regular price of $18.00 each. The following income statement is for the 68,500 units of the product that X Company has already made and sold to its regular customers:

Sales $1,233,000

Cost of goods sold 603,485

Gross margin $629,515

Selling and administrative costs 145,905

Profit $483,610

For the year, fixed cost of goods sold were $145,905, and fixed selling and administrative costs were $68,500. The special order product has some unique features that will require additional material costs of $0.73 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 $0.12. The effect of reducing the selling price will be to decrease firm profits by

Answer 1

Answer is given below