At the end of the year, a company offered to buy 4,470 units of a product from X

Question

At the end of the year, a company offered to buy 4,470 units of a product from X Company for a special price of $11.00 each instead of the company's regular price of 519.00 each. The following information relates to the 67,500 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 $2,500. 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

Explanation / Answer

Statement showing evaluation of special Order Particulars Amount Sales Revenue =4470 *11                             49,170.00 Variable COGS = 4470*6.25                             27,937.50 Additional Mat Cost = 4470*.81                                3,620.70 Rental of Special Equipment                                2,500.00 Income = Sales - Costs                             15,111.80 Note: Fixed Costs remain unaffected by the order Variable selling costs are ignored since this is special order Particulars Amount Sales Revenue Lost =950*19                             18,050.00 Variable COGS = 950*6.25                                5,937.50 Variable selling and Admin = 950*1.38                                1,311.00 Reduction in firms Profits due to loss of sales                             10,801.50

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