At the end of the year a company offered to buy 4180 units o

At the end of the year, a company offered to buy 4,180 units of a product from X Company for a special price of $12.00 each instead of the company\'s regular price of $18.00 each. The following information relates to the 69,600 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 $0.75 per unit and the rental of special equipment for $3,500.

5. Profit on the special order would be ____

6. The marketing manager thinks that if X Company accepts the special order, regular customers will be lost, with demand falling by 950 units. The effect of this loss of sales will be to decrease firm profits by ___

Please show full work. Thank you!

Solution

Cost per unit = 6.26+2.07+1.16+1.45=10.94

Additional cost is 0.75 per unit making the new cost per unit = 10.94+0.75=11.69

Total cost for making 4,180 units is 4,180*11.69=48864.2

Additional cost of special equipment rental = 3500

So final cost is 48864.2+3500=52364.2

Selling price per unit = 12

Total units sold = 4,180

So total revenue generated = 12*4180=50160

Hence, profit generated by Company X = Revenue-Cost = 50160-52364.2=-2204.2

There is no profit, in fact there is a loss of 2204.2$

6) Profit per unit = 7.06

New Demand = old demand - 950 = 69600-950=68650

New profit = 68650*7.06= 484669

Decrease in profit = 491,376-484669=6707$