Delta Company produces a single product. The cost of producing and selling a sin

Question

Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 87,600 units per year is Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expense Fixed selling and administrative expense $ 2.40 $ 4.00 $ 80 $ 5.15 $ 2.00 $ 3.00 The normal selling price is $22 per unit. The company's capacity is 105,600 units per year. An order has been received from a mail-order house for 1,500 units at a special price of $19.00 per unit. This order would not affect regular sales Required 1. If the order is accepted, by how much will annual profits be increased or decreased? (The order will not change the company's total fixed costs.) nual profits would by 2. Assume the company has 500 units of this product left over from last year that are inferior to the current model The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places.) Relevant cost per unit

Explanation / Answer

1 Per unit Total 1500 units Incremental revenue 19 28500 Incremental costs: Direct materials 2.4 3600 Direct labor 4 6000 Variable manufacturing overhead 0.8 1200 Variable selling and administrative expense 2 3000 Total Incremental costs 13800 Incremental net operating income(loss) 14700 Annual profits would increase by $14700 2 Relevant cost per unit = Variable selling and administrative expense = $2

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