Question

Questions 4 and 5 refer to the following problem:

At the end of the year, a company offered to buy 4,910 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 64,500 units of the product that X Company has already made and sold to its regular customers:

Sales		$1,225,500
Cost of goods sold		550,185
Gross margin		$675,315
Selling and administrative costs		161,895
Profit		$513,420

For the year, variable cost of goods sold were $414,735, and variable selling and administrative costs were $76,755. The special order product has some unique features that will require additional material costs of $0.70 per unit and the rental of special equipment for $5,000.

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 $0.14. The effect of reducing the selling price will be to decrease firm profits by

Answer 1

4
Variable cost of goods sold	6.43	=414735/64500
Variable selling and admin costs	1.19	=76755/64500
Revenue	54010	=4910*11
Less: Costs
Variable cost of goods sold	31571	=4910*6.43
Variable selling and admin costs	5843	=4910*1.19
Additional material costs	3437	=4910*0.70
Special Equipment	5000
Total costs	45851
Profit on special order	8159

5
Effect on reducing selling price	9030	=64500*0.14