Questions 5 and 6 refer to the following information: At the end of the year, a
ID: 2510298 • Letter: Q
Question
Questions 5 and 6 refer to the following information: At the end of the year, a company offered to buy 4,870 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 68,800 units of the product that X Company has already made and sold to its regular customers: Total Per-Unit $19.00 Revenue Cost of Goods Sold $1,307,200 Variable Fixed 429,312 155,488 6.24 2.26 Selling and Administrative Costs Variable Fixed 79,808 96,320 $546,272 1.16 1.40 $7.94 Profit 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 $2,500. 8 pts. Profit on the special order would be 5. AO $2,629 BO $3,813 CO 85,528 DO S8,016 EO $11,623 FO $16,853 8 pt . The marketing manager thinks that if X Company accepts the special order, regular customers will be lost, with emand falling by 800 units. This loss in sales will cause firm profits to fall by 6. AO se,400 B0$9,280 CO $13,456 DO $19,5 11 EOS28,291 FOsa,022Explanation / Answer
(a) Profit on sale of special order
COGS - Variable 6.24
S&D - Variable 1.16
Special material 0.70
Special Equipment 0.513
Total cost 8.613
Profit = (Selling price - cost)*qty = (11 - 8.613)*4870 = 11623
Correct answer is 'E'
(b) Loss deue to acceptance of offer
Profit to fall = Profit p.u. * Demand lost = 7.94*800 = 6352
Answer will be (a)
Note: if company will not accept the special order then sell 68800 units and recovered fixed cost as well. in case of demand lost company will also suffer the recovery of fixed cost, it'll be consider
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