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 85,200 units per year is: The normal selling price is $25 per unit The company's capacity is 100,800 units per year. An order has been received from a mail-order house for 1,300 units at a special price of $22.00 per unit. This order would not affect regular sales. 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.)

Explanation / Answer

1)

Incremental profit per unit = Selling price - incremental cost

                                               = 22 - (1.70 + 3 +0.70 + 1.40)

                                              = 15.20

Increase in total profit for 1300 units = 1300 * 15.20 = 19760

2)

The relevant cost is 1.40 per unit(variable selling and admin cost), all other variable costs are sunk costs because the units are already produce.

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