At the end of the year, a company offered to buy 4,180 units of a product from X
ID: 3421822 • Letter: A
Question
At the end of the year, a company offered to buy 4,180 units of a product from X Company for a special price of $12.00 each instead of the company's regular price of $18.00 each. The following information relates to the 69,600 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 $0.75 per unit and the rental of special equipment for $3,500.
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 950 units. The effect of this loss of sales will be to decrease firm profits by ___
Please show full work. Thank you!
Total Per-Unit Revenue $1,252,800 $18.00 Cost of Goods Sold Variable 435,696 6.26 Fixed 144,072 2.07 Selling and Administrative Costs Variable 80,736 1.16 Fixed 100,920 1.45 Profit $491,376 $7.06Explanation / Answer
Cost per unit = 6.26+2.07+1.16+1.45=10.94
Additional cost is 0.75 per unit making the new cost per unit = 10.94+0.75=11.69
Total cost for making 4,180 units is 4,180*11.69=48864.2
Additional cost of special equipment rental = 3500
So final cost is 48864.2+3500=52364.2
Selling price per unit = 12
Total units sold = 4,180
So total revenue generated = 12*4180=50160
Hence, profit generated by Company X = Revenue-Cost = 50160-52364.2=-2204.2
There is no profit, in fact there is a loss of 2204.2$
6) Profit per unit = 7.06
New Demand = old demand - 950 = 69600-950=68650
New profit = 68650*7.06= 484669
Decrease in profit = 491,376-484669=6707$
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