Questions 5 and 6 refer to the following information: At the end of the year, a

Question

Questions 5 and 6 refer to the following information: At the end of the year, a company offered to buy 4,790 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 60,900 units of the product that X Company has already made and sold to its regular customers: Tota Per-Unit Revenue $1,157,100 $19.00 Cost of Goods Sold Variable Fixed 397,068 6.52 121,191 1.99 Selling and Administrative Costs Variable Fixed 70,035 1.15 87,696 1.44 $481,110 $7.90 Profit 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 ,500 5. Profit on the special order would be Submit Answer 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 Submit Answer Tries 0/3

Explanation / Answer

Incremental incocme frm Special order: Incremental revenue for the special order (4790 units @11) 52690 Less: Incremental cost: Variable cost of Goods sold (4790 units @6.52) 31230.8 Additional material cost (4790 units @0.81) 3879.9 Variable Selling cost (4790 uits@1.15) 5508.5 Additional rental cost 2500 Net increase in income 9570.8 Loss of profit for loss of sale: Sales units lost Loss of sales (750 units @19) 14250 Lless: savingin varriable cost (750 uniits @7.67 per unit 5752.5 Loss of profit for loss of sale: 8497.5

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