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:

Direct materials $ 2.10

Direct labor $ 3.00

Variable manufacturing overhead $ .70

Fixed manufacturing overhead $ 4.25

Variable selling and administrative expenses $ 1.90

Fixed selling and administrative expenses $ 2.00

The normal selling price is $20 per unit. The company’s capacity is 114,000 units per year. An order has been received from a mail-order house for 2,400 units at a special price of $17.00 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.)

2. 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 Additional Revenue 2400*17 =    40,800 Additional Cost: Direct material Cost 2400*2.10 =      5,040 Direct Labour Cost 2400*3 =      7,200 Varaiable manufacturing Overhead 2400*0.7 =      1,680 variable Selling & administrative expenses 2400*1.90 =      4,560 Total Additional Cost    18,480 Net Additional income    22,320 2 Minimum Selling price would be minimum total varaible Cost Direct material Cost 2.1 Direct Labour Cost 3 Varaiable manufacturing Overhead 0.7 variable Selling & administrative expenses 1.9 Minimum Selling price would be per unit 7.7

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.