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

 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