At the end of the year, a company offered to buy 4,200 units of a product from X
ID: 2511806 • Letter: A
Question
At the end of the year, a company offered to buy 4,200 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 69,100 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 $0.90 per unit and the rental of special equipment for $3,000.
The marketing manager thinks that if X Company accepts the special order, regular customers will be lost, with demand falling by 800 units. This loss in sales will cause firm profits to fall by ______________?
Explanation / Answer
CALCULATION OF THE PROFIT ON THE SALE OF SPECIAL ORDER Units Rate Amount Sales Revenue 4200 $ 11.00 $ 46,200.00 Less : Variable Cost of Goods Sold 4200 $ 6.71 $ 28,182.00 Less: Selling and Administrative Cost 4200 $ 1.38 $ 5,796.00 Less: addittional Material cost 4200 $ 0.90 $ 3,780.00 Less: Rental Equipment $ 3,000.00 $ 5,442.00 Answer = profit increase by $ 5,442 Answer = CALCULATION OF THE LOSS IF THE SPECIAL ORDER ACCEPTED Units Rate Amount Revenue 68300 $ 19.00 $ 12,97,700 Less: Variable Cost of Goods Sold 68300 $ 6.71 $ 4,58,293 Less: Selling and Administrative Cost 68300 $ 1.38 $ 94,254 Less: Fixed Cost Fixed Cost of Goods sold $ 1,28,526 Fixed Cost of Selling and administrative Expenses $ 71,864 Net Revenue with 68,300 Units(A) $ 5,44,763 Net Revenue with 69,100 units (B) $ 5,53,491 Loss from the accepting the special project(B-A) $ 8,728 So if we accept the special order than the profit will be fall by $ 8,728
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