Question

At the end of the year, a company offered to buy 4,710 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 60,600 units of the product that X Company has already made and sold to its regular customers:

Sales		$1,151,400
Cost of goods sold		495,102
Gross margin		$656,298
Selling and administrative costs		149,682
Profit		$506,616

For the year, fixed cost of goods sold were $115,746, and fixed selling and administrative costs were $78,780. The special order product has some unique features that will require additional material costs of $0.74 per unit and the rental of special equipment for $2,500.

4. Profit on the special order would be

A: $10,717

B: $15,539

C: $22,532

D: $32,671

E: $47,373

F: $68,692

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 $0.15. The effect of reducing the selling price will be to decrease firm profits by

Answer 1

4
Variable cost of goods sold	6.26	=(495102-115746)/60600
Variable selling and admin costs	1.17	=(149682-78780)/60600
Revenue	56520	=4710*12
Less: Costs
Variable cost of goods sold	29485	=4710*6.26
Variable selling and admin costs	5511	=4710*1.17
Additional material costs	3485	=4710*0.74
Special Equipment	2500
Total costs	40981
Profit on special order	15539
Option B $15,539 is correct answer
5
Effect on reducing selling price	9090	=60600*0.15
$9,090 is correct answer