At the end of the year, a company offered to buy 4,670 units of a product from X

Question

At the end of the year, a company offered to buy 4,670 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 69,800 units of the product that X Company has already made and sold to its regular customers: Per- Unit Total Revenue Cost of Goods Sold $1,186,600 $17.00 Variable 465,566 6.67 132,620 1.90 Fixed Selling and Administrative Costs 85,156 1.22 94,9281.36 $408,330 $5.85 Variable Fixed Profit The special order product has some unique features that will require additional material costs of $0.89 per unit and the rental of special equipment for $4,500 5. Profit on the special order would be Submit AnswerTries 0/3 6. The marketing manager thinks that if X Company accepts the special order, regular customers will be lost, with demand falling by 700 units. This loss in sales will cause firm profits to fall by Submit Answer Tries 0/3

Explanation / Answer

Solution 5:

Solution 6:

Contribution per unit of regular order = $17 - $6.67 - $1.22 = $9.11 per unit

If special order is accepted then regular customers will be lost with demand falling by 700 units. This loss in sales will cause firm profits fall by = 700 * $9.11 = $6,377

Compuatation of profit on special order Particulars Amount Revenue (4670*$11) $51,370.00 Variable Cost: Variable cost of goods sold (4670 * $6.67) $31,148.90 Variable selling and adminstrative cost (4670*$1.22) $5,697.40 Additional material cost (4670*$0.89) $4,156.30 Contribution from special order $10,367.40 Rental cost of special equipment $4,500.00 Profit on special order $5,867.40

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