Question

# At the end of the year, a company offered to buy 4,110 units of a product...

At the end of the year, a company offered to buy 4,110 units of a product from X Company for \$11.00 each instead of the company's regular price of \$18.00 each. The following income statement is for the 61,200 units of the product that X Company has already made and sold to its regular customers:

 Sales \$1,101,600 Cost of goods sold 548,964 Gross margin \$552,636 Selling and administrative costs 159,732 Profit \$392,904

For the year, fixed cost of goods sold were \$126,072, and fixed selling and administrative costs were \$78,948. The special order product has some unique features that will require additional material costs of \$0.89 per unit and the rental of special equipment for \$5,000.

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

 4 Variable cost of goods sold 6.91 =(548964-126072)/61200 Variable selling and admin costs 1.32 =(159732-78948)/61200 Revenue 45210 =4110*11 Less: Costs Variable cost of goods sold 28400 =4110*6.91 Variable selling and admin costs 5425 =4110*1.32 Additional material costs 3658 =4110*0.89 Special Equipment 5000 Total costs 42483 Profit on special order 2727
 5 Effect on reducing selling price 12240 =61200*0.20

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