Question

Questions 4 and 5 refer to the following problem:

At the end of the year, a company offered to buy 4,860 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 62,000 units of the product that X Company has already made and sold to its regular customers:

Sales		$1,116,000
Cost of goods sold		558,620
Gross margin		$557,380
Selling and administrative costs		140,740
Profit		$416,640

For the year, fixed cost of goods sold were $133,300, and fixed selling and administrative costs were $72,540. 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 $2,000.

4. Profit on the special order would be

A: $4,435

B: $6,430

C: $9,324

D: $13,520

E: $19,603

F: $28,425

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: $6,200

B: $7,254

C: $8,487

D: $9,930

E: $11,618

F: $13,593

Answer 1

Profit on special order
Sales Revenue	$       53,460
($11*4860)
Less:
Cost of goods sold (variable)	$       33,340
[(558620-133300)/62000*4860]
Selling and Admin Cost (variable)	$         5,346
[(140740-72540)/62000*4860]
Additional Materials	$         3,451
(0.71*4860)
Special Equipment Rent	$         2,000
Profit	$         9,324
Correct Option : C.9324
Decrease in profit due to price reduction	$         6,200
($0.10*62000 units)
Correct Option: A.6200