Question

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) ?

Answer 1

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