Dota Gompany produces a singla product The cost cf producing and sclirg a singie

Question

Dota Gompany produces a singla product The cost cf producing and sclirg a singie unr of this procuct at the compeny's nonmal actvty lavel ot 84,000 units per year is: Drect materials Droct labor Vanabla manutacturna overhead Fxed manufactunng oveheBd Variable seling and admnistrative expenses S1.30 rxed selirg and sdmiisalive experses S2.00 S 240 S 3 00 S 60 S 3.95 The nomal seling pnce is S20 per unit. The company's cepacys98,400 unts per year. An creer has been eceived rium a mai order house for 1,200 units at ? special price of S 17.00 per uriL Thi order would not alTec! egular saes. Required: 1. rthe order is accepted, byw how much will annual prorts be increased or decreased? (Ihe order wil not change the compemy's total fixed costs.) ncrease 2. Assume the company has 500 unns or this product lelt over trom last year that are intenor to the current ??0del. The units must be sold through regular channels at reduced pnces, what unt cost is relevant tor establshiin a minium selng price for these uits IRound your answer to 2 decimal places.)

Explanation / Answer

Per unit Total 1200 units Incremental revenue 17 20400 Incremental costs: Direct materials 2.4 2880 Direct labor 3 3600 Variable manufacturing overhead 0.6 720 Variable selling and administrative expense 1.3 1560 Total Incremental costs 8760 Incremental net operating income(loss) 11640 Annual profits would increase by $11640 2 Relevant cost per unit=Variable selling and administrative expense = $1.30

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