Question

At the end of the year, a company offered to buy 4,510 units of a product from X Company for $11.00 each instead of the company's regular price of $18.00 each. The following income statement is for the 61,100 units of the product that X Company has already made and sold to its regular customers:

Sales		$1,099,800
Cost of goods sold		543,790
Gross margin		$556,010
Selling and administrative costs		167,414
Profit		$388,596

For the year, fixed cost of goods sold were $120,367, and fixed selling and administrative costs were $76,375. The special order product has some unique features that will require additional material costs of $0.70 per unit and the rental of special equipment for $5,000.

4. Profit on the special order would be

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 $0.16. The effect of reducing the selling price will be to decrease firm profits by

Answer 1

		Value	Qty
	Sales	$1,099,800	61,100
	COGS	$        543,790
	FIXED COGS	$        120,367
	VARIABLE COGS	$        423,423
	Variable COGS/UNIT	$               6.93
	S & A COST	$        167,414
	Fixed S&A Cost	$          76,375
	Variable S&A Cost	$          91,039
	Variable S&A Cost/Unit	$               1.49
	New Product sales price	$            11.00
	Variable Cogs	$               6.93
	Variable S&A Cost	$               1.49
	Additional cost	$               0.70
	margin	$               1.88
	total margin	$      8,478.80
	rental	$      5,000.00
4	profit on special order	$      3,478.80
	Loss due to price reduction	.16/Unit
	Loss due to price reduction	9,776.00
	profit on special order	$      3,478.80
5	Firm profit will decrease by	6,297.20