Question

At the end of the year, a company offered to buy 4,460 units of a product from X Company for $12.00 each instead of the company's regular price of $17.00 each. The following income statement is for the 69,300 units of the product that X Company has already made and sold to its regular customers:

Sales		$1,178,100
Cost of goods sold		557,172
Gross margin		$620,928
Selling and administrative costs		163,548
Profit		$457,380

For the year, fixed cost of goods sold were $146,223, and fixed selling and administrative costs were $85,932. The special order product has some unique features that will require additional material costs of $0.71 per unit and the rental of special equipment for $3,000.

4. Profit on the special order would be

A: $9,758

B: $11,027

C: $12,460

D: $14,080

E: $15,910

F: $17,979

Tries 0/99

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 $0.16. The effect of reducing the selling price will be to decrease firm profits by

A: $2,664

B: $3,544

C: $4,713

D: $6,268

E: $8,337

F: $11,088

Answer 1

4
Variable cost of goods sold	5.93	=(557172-146223)/69300
Variable selling and admin costs	1.12	=(163548-85932)/69300
Revenue	53520	=4460*12
Less: Costs
Variable cost of goods sold	26448	=4460*5.93
Variable selling and admin costs	4995	=4460*1.12
Additional material costs	3167	=4460*0.71
Special Equipment	3000
Total costs	37610
Profit on special order	15910
Option E $15,910 is correct answer
5
Effect on reducing selling price	11088	=69300*0.16
Option F $11,088 is correct answer