Question

At the end of the year, a company offered to buy 4,800 units of a product...

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

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

Tries 0/3

Homework Answers

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
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