Question

# At the end of the year, a company offered to buy 4,630 units of a product...

At the end of the year, a company offered to buy 4,630 units of a product from X Company for \$11.00 each instead of the company's regular price of \$19.00 each. The following income statement is for the 68,700 units of the product that X Company has already made and sold to its regular customers:

 Sales \$1,305,300 Cost of goods sold 599,064 Gross margin \$706,236 Selling and administrative costs 169,002 Profit \$537,234

For the year, variable cost of goods sold were \$460,977, and variable selling and administrative costs were \$99,615. The special order product has some unique features that will require additional material costs of \$0.72 per unit and the rental of special equipment for \$3,000.
(2 Parts)
1. Profit on the special order would be :

2 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 \$0.11. The effect of reducing the selling price will be to decrease firm profits by (is the answer 8,539) ?

 1 Variable cost of goods sold 6.71 =460977/68700 Variable selling and admin costs 1.45 =99615/68700 Revenue 50930 =4630*11 Less: Costs Variable cost of goods sold 31067 =4630*6.71 Variable selling and admin costs 6714 =4630*1.45 Additional material costs 3334 =4630*0.72 Special Equipment 3000 Total costs 44114 Profit on special order 6816 or 6815 \$6,816 is correct answer 2 Effect on reducing selling price 7557 =68700*0.11 \$7,557 is correct answer

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