Question

At the end of the year, a company offered to buy 4,730 units of a product...

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

Homework Answers

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
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