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 87,600 units per year is Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses $ 1.50 Fixed selling and administrative expenses $ 3.00 $1.60 $4.00 $ .60 $4.65 The normal selling price is $23 per unit. The company's capacity is 104,400 units per year. An order has been received from a mail-order house for 1,400 units at a special price of $20.00 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.) Annual profits would by

Explanation / Answer

Per unit Total 1400 units Incremental revenue 23 32200 Incremental costs: Direct materials 1.6 2240 Direct labor 4 5600 Variable manufacturing overhead 0.6 840 Variable selling and administrative cost 1.5 2100 Total Incremental costs 10780 Incremental net operating income(loss) 21420 Annual profits wiuld increase by $21420 2 Relevant cost per unit = Variable selling and administrative cost = $1.5

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