Question

At the end of the year, a company offered to buy 4,320 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 67,300 units of the product that X Company has already made and sold to its regular customers:

Sales		$1,144,100
Cost of goods sold		519,556
Gross margin		$624,544
Selling and administrative costs		139,311
Profit		$485,233

For the year, variable cost of goods sold were $383,610, and variable selling and administrative costs were $67,973. The special order product has some unique features that will require additional material costs of $0.77 per unit and the rental of special equipment for $3,000.

4. Profit on the special order would be

A: $16,526

B: $18,675

C: $21,103

D: $23,846

E: $26,946

F: $30,449

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 $0.10. The effect of reducing the selling price will be to decrease firm profits by

A: $3,805

B: $5,060

C: $6,730

D: $8,951

E: $11,905

Answer 1

4
Variable cost of goods sold	5.7	=383610/67300
Variable selling and admin costs	1.01	=67973/67300
Revenue	51840	=4320*12
Less: Costs
Variable cost of goods sold	24624	=4320*5.7
Variable selling and admin costs	4363.2	=4320*1.01
Additional material costs	3326.4	=4320*0.77
Special Equipment	3000
Total costs	35314
Profit on special order	16526
Option A $16,526 is correct answer
5
Effect on reducing selling price	6730	=67300*0.10
Option C $6,730 is correct answer