Question

At the end of the year, a company offered to buy 4,730 units of a product from X Company for $11.00 each instead of the company's regular price of $17.00 each. The following income statement is for the 60,100 units of the product that X Company has already made and sold to its regular customers:

Sales		$1,021,700
Cost of goods sold		502,436
Gross margin		$519,264
Selling and administrative costs		158,063
Profit		$361,201

For the year, fixed cost of goods sold were $122,604, and fixed selling and administrative costs were $69,716. 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

Tries 0/3

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 $0.10. The effect of reducing the selling price will be to decrease firm profits by

Answer 1

4
Variable cost of goods sold	6.32	=(502436-122604)/60100
Variable selling and admin costs	1.47	=(158063-69716)/60100
Revenue	52030	=4730*11
Less: Costs
Variable cost of goods sold	29894	=4730*6.32
Variable selling and admin costs	6953	=4730*1.47
Additional material costs	3358	=4730*0.71
Special Equipment	3000
Total costs	43205
Profit on special order	8825

5
Effect on reducing selling price	6010	=60100*0.10