Delta Company produces a single product. The cost of producing and selling a sin
ID: 2497247 • Letter: D
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 86,400 units per year is:
The normal selling price is $24 per unit. The company’s capacity is 121,200 units per year. An order has been received from a mail-order house for 2,900 units at a special price of $21.00 per unit. This order would not affect regular sales.
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 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.)
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 86,400 units per year is:
Explanation / Answer
1) Statement showing computations Particulars Amount Price = 2900*21 60,900.00 Total Costs: Direct Materials = 2900*1.60 4,640.00 Direct Labour= 2900*2 5,800.00 Variable Manu O.H= 2900*.90 2,610.00 Variable Selling and Admin = 2900*1.80 5,220.00 Total Costs 18,270.00 Income from Special Order 42,630.00 2) Statement showing Unit Costs Particulars Amount Direct Materials 1.60 Direct Labour 2.00 Variable Manu O.H 0.90 Variable Selling and Admin 1.80 Minimum Selling price for inferior units assuming that no profit to be earned on these units i.e. Only relevant costs would be receovered 6.30
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