Question
Near the end of 2020, X Company had produced 66,900 units of its only product and had sold them for $11.57 each. Per-unit costs were:
Near the end of 2020, X Company had produced 66,900 units of its only product and had sold them for $11.57 each. Per-unit costs were:
Direct materials | $1.50 |
Direct labor | 1.60 |
Variable overhead | 2.90 |
Fixed overhead | 1.80 |
Variable selling and administration | 1.20 |
Fixed selling and administration | 1.10 |
Total | $10.10 |
Just before the year ended, a company offered to buy 4,340 units for $10.37 each. X Company had the capacity to produce the additional 4,340 units, but because the special order product was slightly different than the regular product, direct material costs were expected to decrease by $0.20 per unit, and some special equipment would have to be rented for a total of $19,000.
2. Assume that X Company's marketing manager thought that if the company had accepted the special order, regular sales in 2021 would have fallen to 65,769 units. If the marketing manager was correct, the effect of this fall in regular sales would been to decrease company profit in 2021 by
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