Question

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

Selling and administrative costs 140,592

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

Answer 1

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