Question

# At the end of the year, a company offered to buy 4,580 units of a product...

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

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

 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