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

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 93600 units per year is: 1.60 Direct materials Direct labor Variable manufacturing overbead Pixed manufacturing overhead Variable selling and adainistrative expenses $1.30 Fixed selling and adninistrative expenses 2.00 $4.85 1.00 The normal selling price is $22.00 per u The company's capacity is 106,800 units per year An order has been received from a mail. order house for 1100 units at a special price of $19.00 per unlt. This order would not affect reguiar sales or the company's total fixed costs Required: 1. What is the financial advantage (disadvantage) of accepting the speclal order? 2. As a separete metter from the special order, assume the company's Inventory includes 1,000 units of this product that were produced lest year and 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the financial advantage (disadvantage) of accepting the special order? Required 2 > Prex 8of 12 E Next >

Explanation / Answer

1.

Financial advantage of accepting the order =$ 14,740

2. The only cost that is relevant for the inferior model is the variable selling and administrative expenses since all other costs have already been incurred .

The cost relevant for establishing the minimum selling price of these units is $1.3.

Particulars Per Unit For 1100 units Incremental Sales 19 20900 Less:Incremental Costs Direct Materials 1.6 1760 Direct Labor 2 2200 Variable Manufacturing Overhead 0.7 770 Variable selling and administrative overhead 1.3 1430 Incremental Profit 14740

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