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:
Cost of goods sold 603,485
Gross margin $629,515
Selling and administrative costs 145,905
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
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