At the end of the year, a company offered to buy 4,920 units of a product from X

Question

At the end of the year, a company offered to buy 4,920 units of a product from X Company for a special instead of the company's regular price. The following information relates to the 62,800 units of the product that X Company has already made and sold to its regular customers: price of $11.00 ench Total Per-Unit Revenue Cost of Goods Sold 81,067,600 $17.00 Variable Fixed 6.68 419,504 127,484 2.03 1.02 86.17 Selling and Administrative Costs Variable Fixed 64,056 69,080 $387,476 Profit The special order product has some unique features that will equire additional material costs of $0.81 per unit and the rental of special equipment for $4,500. S pts. Profit on the special order would be 5 AO $4,136 BO $4,839 CO 85,062 DO0,625 EO ,761 FO $9,068 8 pts. The marketing manager thinks that if X Company accepts the special order, regular customers will be lost, with mand falling by 900 units. This loss in sales will cause firm profits to fall by 6. AO $3,818 BO S4,467 CO85,226 DO $6,114 EO $7,154 FO $8,370

Explanation / Answer

Answer is E. $7751 Explanation: Incremental Analysis of Income of accepting the offer: Revenue from offer (4920 units @11) 54120 Less: variable cost Cost of Goods sold (4920 units @6.680. 32865.6 Additional material cost (4920 units @0.81) 3985.2 variable Selling and admin (4920 units @1.02) 5018.4 Less: Additional Rent expense 4500 Net Increasae in income 7750.8 Answer is F. $ 8370 Explanation: Selling price 17 Less: variable cost 7.7 Contribution per nit 9.3 Loss of sales units 900 net decrese in profits due to loss of sales 8370

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