Question

At the end of the year, a company offered to buy 4,030 units of a product from X Company for $11.00 each instead of the company's regular price of $17.00 each. The following income statement is for the 64,500 units of the product that X Company has already made and sold to its regular customers:

Sales		$1,096,500
Cost of goods sold		532,125
Gross margin		$564,375
Selling and administrative costs		179,955
Profit		$384,420

For the year, variable cost of goods sold were $395,385, and variable selling and administrative costs were $85,140. The special order product has some unique features that will require additional material costs of $0.71 per unit and the rental of special equipment for $3,500.

4. Profit on the special order would be

A: $4,873

B: $5,506

C: $6,222

D: $7,031

E: $7,945

F: $8,978

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 $0.14. The effect of reducing the selling price will be to decrease firm profits by

A: $4,119

B: $4,819

C: $5,638

D: $6,597

E: $7,718

F: $9,030

Answer 1

4
Variable cost of goods sold	6.13	=395385/64500
Variable selling and admin costs	1.32	=85140/64500
Revenue	44330	=4030*11
Less: Costs
Variable cost of goods sold	24703.9	=4030*6.13
Variable selling and admin costs	5319.6	=4030*1.32
Additional material costs	2861.3	=4030*0.71
Special Equipment	3500
Total costs	36385
Profit on special order	7945
Option E $7,945 is correct answer
5
Effect on reducing selling price	9030	=64500*0.14
Option F $9,030 is correct answer