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
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