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 98,400 units per year is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses $ 2.00 Fixed selling and administrative expenses S 3.00 $2.00 $ 4.00 $ .70 $ 4.25 The normal selling price is $18 per unit. The company's capacity is 120,000 units per year. An order has been received from a mail-order house for 1,800 units at a special price of $15.00 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.) nnual profits would by

Explanation / Answer

1) Selling price per unit 15 less:Variable cost Direct Materials 2 Direct labor 4 Variable manufacturing overhead 0.7 variable selling & adm expense 2 total variable expense 8.7 Contribution margin 6.3 contribution margin on special order 1800*6.3 11340 answer annual profit would increase by $11,340 2) $2.00 variable selling and administrative expense is relevant cost

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