2. 10.00 points Delta Company produces a single product. The cost of producing a

Question

2. 10.00 points 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 103,200 units per year is Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses $1.70 Fixed selling and administrative expenses $1.00 1.90 $ 2.00 $ .80 S 4.65 The normal selling price is $21 per unit. The company's capacity is 120,000 units per year. An order has been received from a mail-order house for 1,400 units at a special price of $18.00 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 fioxed 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.) O Type here to search DII dx F1 F2 F3 FS 8

Explanation / Answer

Variable selling & administrative expenses per unit ($1.70) is the relevant cost because other variable costs are related to manufacturing.

Ans.1 Annual profit would increased by $16240 *Calculation: Incremental sales (1400 * 18) 25200 Less: Incremental cost: Direct materials (1.90*1400) -2660 Direct labor (2*1400) -2800 Variable manufacturing overhead (0.80*1400) -1120 Variable selling & administration expenses (1.70*1400) -2380 Incremental Profit 16240 Ans.2

Variable selling & administrative expenses per unit ($1.70) is the relevant cost because other variable costs are related to manufacturing.

Fixed cost is not relevant as it is not affected by sales.

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