Question

At the end of the year, a company offered to buy 4,580 units of a product from X Company for $12.00 each instead of the company's regular price of $19.00 each. The following income statement is for the 65,400 units of the product that X Company has already made and sold to its regular customers:

Sales $1,242,600

Cost of goods sold 482,652

Gross margin $759,948

Selling and administrative costs 177,888

Profit $582,060

For the year, variable cost of goods sold were $352,506, and variable selling and administrative costs were $87,636. The special order product has some unique features that will require additional material costs of $0.78 per unit and the rental of special equipment for $3,000.

4. Profit on the special order would be

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	5.39	=352506/65400
Variable selling and admin costs	1.34	=87636/65400
Revenue	54960	=4580*12
Less: Costs
Variable cost of goods sold	24686	=4580*5.39
Variable selling and admin costs	6137	=4580*1.34
Additional material costs	3572	=4580*0.78
Special Equipment	3000
Total costs	37396
Profit on special order	17564

5
Effect on reducing selling price	9810	=65400*0.15