Delta Company produoes a single product. The cost of producing and selling a sin
ID: 2430665 • Letter: D
Question
Delta Company produoes a single product. The cost of producing and selling a single unit of this product at he company's normal activity level of 60,000 units per year is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expense $ 1.50 Fixed selling and administrative expense $ 2.40 $5.10 3.80 1.00 $ 4.20 The normal selling price is $21 per unit. The company's capacity is 75,000 units per year. An order has been received from a mail-order house for 15,000 units at a special price of $14.00 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 profit would 2. Assume the company has 1,000 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 aces Relevant cost per unitExplanation / Answer
Part 1
Delta Company
Income statement
Amount (sales 60000 Units)
Amount (sales 75000 Units)
Additional benefit(loss)
Sales
$ 1,260,000.00
$ 1,470,000.00
$ 210,000.00
Less: Variable Cost
Direct Material
$ 306,000.00
$ 382,500.00
$ 76,500.00
Direct Labor
$ 228,000.00
$ 285,000.00
$ 57,000.00
Variable manufacturing Overheads
$ 60,000.00
$ 75,000.00
$ 15,000.00
Variable selling and Administrative overheads
$ 90,000.00
$ 112,500.00
$ 22,500.00
Total Variable Cost
$ 684,000.00
$ 855,000.00
$ 171,000.00
Contribution Margin
$ 576,000.00
$ 615,000.00
$ 39,000.00
Less: Fixed cost
Fixed manufacturing Overheads*
$ 252,000.00
$ 252,000.00
$ -
Fixed selling and Administrative overheads**
$ 144,000.00
$ 144,000.00
$ -
Net profit
$ 180,000.00
$ 219,000.00
$ 39,000.00
*60000x4.2
**60000x2.4
Fixed cost will not increase with increase in production so no additional fixed cost will be incurred; only variable cost will increase proportionately.
Annual profit would Increase by $39000.
Part 2
Total variable cost is relevant cost
Relevant cost
Per Unit
Direct Material
$ 5.10
Direct Labor
$ 3.80
Variable manufacturing Overheads
$ 1.00
Variable selling and Administrative overheads
$ 1.50
Relevant cost
$ 11.40
Minimum selling price would be 11.4 per unit.
Relevant cost per unit $11.4
Part 1
Delta Company
Income statement
Amount (sales 60000 Units)
Amount (sales 75000 Units)
Additional benefit(loss)
Sales
$ 1,260,000.00
$ 1,470,000.00
$ 210,000.00
Less: Variable Cost
Direct Material
$ 306,000.00
$ 382,500.00
$ 76,500.00
Direct Labor
$ 228,000.00
$ 285,000.00
$ 57,000.00
Variable manufacturing Overheads
$ 60,000.00
$ 75,000.00
$ 15,000.00
Variable selling and Administrative overheads
$ 90,000.00
$ 112,500.00
$ 22,500.00
Total Variable Cost
$ 684,000.00
$ 855,000.00
$ 171,000.00
Contribution Margin
$ 576,000.00
$ 615,000.00
$ 39,000.00
Less: Fixed cost
Fixed manufacturing Overheads*
$ 252,000.00
$ 252,000.00
$ -
Fixed selling and Administrative overheads**
$ 144,000.00
$ 144,000.00
$ -
Net profit
$ 180,000.00
$ 219,000.00
$ 39,000.00
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