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 100,800 units per year is:

The normal selling price is $24 per unit. The company’s capacity is 118,800 units per year. An order has been received from a mail-order house for 1,500 units at a special price of $21.00 per unit. This order would not affect regular sales.

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.)

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 100,800 units per year is:

Explanation / Answer

Effect of net income ;

Annual profit be increase by $18900

Incremental revenue (1500*21) 31500 Incremental cost Direct material (1500*1.6) 2400 Direct labour (1500*4) 6000 Variable manufacturing overhead (1500*.80) 1200 Variable selling and administrative expenses (1500*2) 3000 Net operating income 18900

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