Question

# At the end of the year, a company offered to buy 4,460 units of a product...

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

 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