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 |
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 |
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