Question

At the end of the year, a company offered to buy 4,800 units of a product from X Company for $12.00 each instead of the company's regular price of $17.00 each. The following income statement is for the 63,200 units of the product that X Company has already made and sold to its regular customers:

Sales		$1,074,400
Cost of goods sold		507,496
Gross margin		$566,904
Selling and administrative costs		150,416
Profit		$416,488

For the year, fixed cost of goods sold were $137,144, and fixed selling and administrative costs were $76,472. The special order product has some unique features that will require additional material costs of $0.74 per unit and the rental of special equipment for $4,000.

4. Profit on the special order would be

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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 $0.20. The effect of reducing the selling price will be to decrease firm profits by

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Answer 1

4
Variable cost of goods sold	5.86	=(507496-137144)/63200
Variable selling and admin costs	1.17	=(150416-76472)/63200
Revenue	57600	=4800*12
Less: Costs
Variable cost of goods sold	28128	=4800*5.86
Variable selling and admin costs	5616	=4800*1.17
Additional material costs	3552	=4800*0.74
Special Equipment	4000
Total costs	41296
Profit on special order	16304

5
Effect on reducing selling price	12640	=63200*0.20