Question

At the end of the year, a company offered to buy 4,570 units of a product from X Company for $11.00 each instead of the company's regular price of $19.00 each. The following income statement is for the 68,900 units of the product that X Company has already made and sold to its regular customers:

Sales		$1,309,100
Cost of goods sold		538,798
Gross margin		$770,302
Selling and administrative costs		174,317
Profit		$595,985

For the year, variable cost of goods sold were $405,132, and variable selling and administrative costs were $86,125. The special order product has some unique features that will require additional material costs of $0.87 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 per goods sold per unit [ 405132 / 68900 ]	5.88
Variable selling and administrative cost per unit [ 86125 / 68900 ]	1.25
	Special order
Sales [ 4570 * 11 ]	50270
(-) Variable Cost of goods sold [ 4570 * (5.88+0.87) ]	30848
(-) Variable selling and administrative expense [ 4570*1.25 ]	5713
(-) Rent of special equipment	3000
Profit on the special order	10710

5.

Reducing the selling price will decrease firms profit by 6890 [ i.e. 68900*0.10 ]