Question

# At the end of the year, a company offered to buy 4,000 units of a product...

At the end of the year, a company offered to buy 4,000 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 60,600 units of the product that X Company has already made and sold to its regular customers:

Sales \$1,090,800

Cost of goods sold

555,096 Gross margin

\$535,704

Profit \$395,112

For the year, variable cost of goods sold were \$422,382, and variable selling and administrative costs were \$73,932. The special order product has some unique features that will require additional material costs of \$0.84 per unit and the rental of special equipment for \$4,500.

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 \$0.15. The effect of reducing the selling price will be to decrease firm profits by

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 \$0.15. The effect of reducing the selling price will be to decrease firm profits by

 4 Variable cost of goods sold 6.97 =422382/60600 Variable selling and admin costs 1.22 =73932/60600 Revenue 44000 =4000*11 Less: Costs Variable cost of goods sold 27880 =4000*6.97 Variable selling and admin costs 4880 =4000*1.22 Additional material costs 3360 =4000*0.84 Special Equipment 4500 Total costs 40620 Profit on special order 3380
 5 Effect on reducing selling price 9090 =60600*0.15

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