At the end of the year, a company offered to buy 4,560 units of a product from X

Question

At the end of the year, a company offered to buy 4,560 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 67,100 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 $0.81 per unit and the rental of special equipment for $4,500.

5. Profit on the special order would be ___

6. The marketing manager thinks that if X Company accepts the special order, regular customers will be lost, with demand falling by 850 units. This loss in sales will cause firm profits to fall by ____

Total    Per-Unit Revenue $1,274,900 $19.00    Cost of Goods Sold    Variable 479,765 7.15       Fixed 124,806 1.86    Selling and Administrative Costs    Variable   99,979   1.49       Fixed     85,217   1.27    Profit $485,133 $7.23   

Explanation / Answer

Statement showing Computation of Net Profit on the Special Order Particulars Amount Amount Sales Revenue (4560 *$11) $50,160.00 Less: Variable COGS (4560*$7.15) $32,604.00 Additional Mat Cost (4560*0.81) $3,693.60 Rental of Special Equipment $4,500.00 $40,797.60 Net Profit from Special Order $9,362.40 Note: Fixed Costs remain unaffected and Variable selling cost ignored Computation of fall in Profit due to Loss in Sales Particulars Amount Amount Sales Revenue Lost (850*$19) $16,150.00 Less: Variable COGS (850*$7.15) $6,077.50 Variable selling and Admin (850*$1.49) $1,266.50 $7,344.00 Fall in Profits due to loss of sales $8,806.00

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