At the end of the year, a company offered to buy 4,630 units of a product from X
ID: 2512821 • Letter: A
Question
At the end of the year, a company offered to buy 4,630 units of a product from X Company for a special price of $12.00 each instead of the company's regular price. The following information relates to the 60,800 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 $0.80 per unit and the rental of special equipment for $2,500.
1. Profit on the special order would be ______
2. 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 _____
Total Per-Unit Revenue $1,033,600 $17.00 Cost of Goods Sold Variable 396,416 6.52 Fixed 122,816 2.02 Selling and Administrative Costs Variable 75,392 1.24 Fixed 74,784 1.23 Profit $364,192 $5.99Explanation / Answer
Req 1. Incremental analysis: Incremental revenue (4630 units @ 12) 55560 Less: Incremental cost Vraiable cost of goods sold (4630 units @6.52) 30187.6 Additional material (4630 units @ 0.80) 3704 Variable Selling and admin exp (4630 units @ 1.24) 5741.2 Additional rental cost 2500 Net increase in income 13427.2 Req 2: Loss of profits from loss of sales units: Number of units of sales lost 700 units Sales revenue (700 units @ 17) 11900 Less: Total variable cost (700 units @ 6.52+1.24) 5432 Loss of profits from loss of sales units: 6468
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