Question

At the end of the year, a company offered to buy 4,610 units of a product from X Company for a special price of $11.00 each instead of the company's regular price. The following information relates to the 61,300 units of the product that X Company has already made and sold to its regular customers:

			Total	Per-Unit
Revenue			$1,164,700	$19.00
Cost of Goods Sold
Variable			410,097	6.69
Fixed			115,244	1.88
Selling and Administrative Costs
Variable			62,526	1.02
Fixed			63,139	1.03
Profit			$513,694	$8.38

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 $4,000.

5. Profit on the special order would be

Tries 0/3

6. The marketing manager thinks that if X Company accepts the special order, regular customers will be lost, with demand falling by 750 units. This loss in sales will cause firm profits to fall by

Answer 1

Question - 5 Profit on special order = 7847.7 or 7848

Selling price	11
Variable cost
special material	0.72
Cost of goods sold	6.69
Selling and administrative cost	1.02
Total variable cost per unit	8.43
Contribution margin per unit	2.57
Number of Units in offer	4610
Total contribution	11847.7
(-) Relevant Fixed cost	4000
Profit	7847.7

While solving questions relating to accepting or rejecting an offer, following points should be kept in mind

(1) Fixed costs are already absorbed in regular market. Hence no part of such fixed costs is relevant for taking a decision on accepting or rejecting the offer. However, $ 4000 which is incurred specifically for the offer is relevant.

(2) There is availability of enough spare capacity to handle the special offer

Question - 6 ..... This loss in sales will cause firm profits to fall by........... 8467.5

	Regular
Selling price	19
Variable cost
Cost of goods sold	6.69
Selling and admin	1.02
Total variable cost	7.71
Contribution per Unit	11.29
Sales lost ( Units)	750
Loss of profit	8467.5