Question

# At the end of the year, a company offered to buy 4,030 units of a product...

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

 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

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