Questions 4 and 5 refer to the following problem: At the end of the year, a company offered to buy 4,630 units of a product from X Company for $12.00 each instead of the company's regular price of $17.00 each. The following income statement is for the 69,600 units of the product that X Company has already made and sold to its regular customers: Sales Cost of goods sold Gross margin Selling and administrative costs Profit $1,183,200 587,424 $595,776 179,568 $416,208 For the year, variable cost of goods sold were $433,608, and variable selling and administrative costs were $87,696. The special order product has some unique features that will require additional material costs of $0.71 per unit and the rental of special equipment for $3,000. 4. Profit on the special order would be Submit Answer Tries 0/3 5. The marketing manager thinks that if X Company accepts the special order, regular customers will be lost unless the selling price for them is reduced by $0.12. The effect of reducing the selling price will be to decrease firm profits by Submit Answer Tries 0/3 The following income statement is for X Company's two products, A and B: Product A $95,000 55,100 $39,900 Product B $92,000 54,280 $37,720 Revenue Total variable costs Total contribution margin Total fixed costs Avoidable Unavoidable Profit 16,292 11,798 $11,810 30,734 25,146 $-18,160 If X Company drops Product B because it shows a loss and is able to use the vacant space to increase sales of Product A by $29,900, with $3,600 of additional fixed costs, what will be the effect on firm profits? Submit Answer Tries 0/3 X Company is trying to decide whether to continue using old equipment to make Product A or replace it with new equipment that will have lower operating costs. The following information is available: The new equipment will cost $45,000. Disposal value at the end of its 5-year useful life will be $6,000. The old equipment was purchased 3 years ago for $24,000. It can be sold immediately for $5,000 but will have zero disposal value in 5 years. Maintenance work, costing $4,000, will be necessary on the old equipment in Year 4. The new equipment will result in $10,000 of operating cost savings each year. Assuming a discount rate of 7%, what is the net present value of replacing the old equipment with the new equipment? [Note: Use the Present Value tables in the Coursepack.] Submit Answer Tries 0/3 X Company has an opportunity to accept a special order that will result in immediate profit of $56,000. After doing some market research that cost $5,000, the marketing manager believes that if X Company accepts the order, the company will lose regular customers. Specifically, she believes the effect will be lost profits of $10,000 in each of the next 5 years. Assuming a discount rate of 5%, what is the net present value of accepting the special order? [Note: Use the Present Value tables in the Coursepack.] Submit Answer Tries 0/3 X Company currently buys 7,000 units of a part each year from a supplier for $8.20 per part, but it is considering making the part instead. In order to make the part, X Company will have to buy equipment that will cost $150,000. The equipment will last for 6 years, at which time it will have zero disposal value. X Company estimates that it will cost $26,890 a year to make all 7,000 units. What is the approximate rate of return if X Company makes the part instead of buying it from the supplier? [Note: 0.03 means 3%, etc.] Submit Answer Tries 0/3