At the end of the year, a company offered to buy 4,210 units of a product from X

Question

At the end of the year, a company offered to buy 4,210 units of a product from X Company for a special price of $11.00 each instead of the company's regular price of $18.00 each. The following information relates to the 66,700 units of the product that X Company has already made and sold to its regular customers:

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 $3,500.

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, with demand falling by 700 units. The effect of this loss of sales will be to decrease firm profits by:

total per unit revenue 1,200,600 18.00 cost for goods sold **variable 420,210 6.30 **fixed 140,737 2.11 selling and admin costs **variable 93380 1.40 **fixed 93380 1.40 profit 452,893 6.79

Explanation / Answer

1. the special order requires only the variable cost of $1.4+6.3+0.7= $8.4 per unit

the offered price is $11 per unit-

the profit from this order will be- 4210* (11-8.4)

= 4210*2.6= $10.946

2. if the sales will be lesser by 700 units then the profits will be decline by- 700*(6.79+3.51)

=700*10.3= $7210

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