Question

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

Answer 1

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