Question

# At the end of the year, a company offered to buy 4,570 units of a product...

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

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 ]