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 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses 1.30 Fixed selling and administrative expenses 3.00 $2.00 $4.00 1.00 3.45 The normal selling price is $24 per unit. The company's capacity is 120,000 units per year. An order has been received from a mail-order house for 1,200 units at a special price of $21.00 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.) nual profits would 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.) Relevant cost per unit

Explanation / Answer

Per unit Total 1200 units Incremental revenue 21 25200 Incremental costs: Variable costs: Direct materials 2 2400 Direct labor 4 4800 Variable manufacturing overhead 1 1200 Variable selling and administrative expenses 1.3 1560 Total Incremental costs 9960 Incremental net operating income(loss) 15240 Annual profits would increase by $15240 2 Releavnt cost per unit = Variable selling and administrative expenses = $1.3

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