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 60,000units per year is The normal selling price is $21 per unit The company s capacity is 75,000units per year An order has been received from a mail-order house for 15,000units at a special price of $14 00 per unit This order would not affect regular sales. Required: 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). Assume the company has 1,000units 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 (or establishing a minimum selling price for these units? (Round your answer to 2 decimal places.)

Explanation / Answer

1.

This order will generate a profit of $39,000.

2.

For obtaining the selling price of 1,000 units of previous year Direct Material, Direct labour and variable manufacturing overhead cost is relevant.

So, the cost per unit is $9.9

60,000 units 15,000 units Selling Price 21 1260000 210000 Direct Material 5.1 306000 76500 Direct Labour 3.8 228000 57000 Variable manufacturing overhead 1 60000 15000 Fixed manufacturing overhead 4.2 252000 Variable selling and administrative expense 1.5 90000 22500 Fixed selling and administrative expense 2.4 144000 1080000 171000 Profit 180000 39000

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