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 105,600 units per year is:

The normal selling price is $20 per unit. The company’s capacity is 127,200 units per year. An order has been received from a mail-order house for 1,800 units at a special price of $17.00 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 105,600 units per year is:

Explanation / Answer

(ii) Effect on total Profit/losss on account of acceptance of order of mail-order house for additional 1800 units,

(iii). Increase in profit = 986280 - 879000 = 107200/-.

(2) Leftover 500 units:

Following unit cost relevant for establishing a minimum selling price for these units.

(i) Computation of gain /loss uner marginal costing. Description Unit Price per unit Amount ($) (A) Sales 105,600 20 2,112,000.00 (B) Variable cost i.Direct materials 105,600 1.70 179,520.00 ii.Direct labor 105,600 2.00 211,200.00 iii.Variable manufacturing overhead 105,600 0.80    84,480.00 (C ) Production Cost of sales 475,200.00     475,200.00 (D ) Gross Contribution Margin (A-B) 1,636,800.00 (E) Variable selling and administrative expenses 105,600 1.90 200,640.00     200,640.00 (F) Contribution Margin (D-E) 1,436,160.00 (G) Perion Cost (fixed Cost) i.Fixed manufacturing overhead 127,200 3.55 451,560.00 ii.Fixed selling and administrative expenses 105,600.00 1.00 105,600.00 557,160.00     557,160.00 (H) Net operating incoome F-G))     879,000.00

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