At the end of the year, a company offered to buy 4,420 regular units from X Comp
ID: 2504481 • Letter: A
Question
At the end of the year, a company offered to buy 4,420 regular units from X Company for a special price of $12.77 each. The following information is for the year during which the company had sold 66,500 units to its regular customers:
Total fixed cost of goods sold were $148,960, and total fixed selling and administrative costs were $84,455.
a. Profit on the special order is
b. Now assume that if the special order is accepted, three things will happen: 1) direct material costs will increase by $0.86 per unit, 2) special equipment will have to be rented for $4,000, 3) sales commissions, regularly $0.51 per unit, will not be paid. These changes will cause the special order profit that you computed in #5 to decrease by
c. The marketing manager thinks that if X Company accepts the special order, regular customers will be lost, and demand will fall by 500 units. This would decrease firm profits by
Total Per-Unit Revenue $1,117,200 $16.80 Cost of goods sold 573,230 8.62 Selling and administrative costs 177,555 2.67 Profit $366,415 $5.51
Explanation / Answer
A) PROFIT = $4.15 PER UNIT
PROFIT == $ 18343
12.77-8.62 = 4.15
B) PROFIT = $2.895 PER UNIT
PROFIT = $12796
PROFIT DECREASES BY=$ 5547
C) FIRM PROFIT DECREASES BY $2755
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