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 100,800 units per year is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $ 2.00 $ 4.00 $ 0.90 $4.85 $2.00 $3.00 The normal selling price is $24.00 per unit. The company's capacity is 114,000 units per year. An order has been received from a mai order house for 1100 units at a special price of $21.00 per unit. This order would not affect regular sales or the company's total fixed costs. Required 1. What is the financial advantage (disadvantage) of accepting the special order? 2. As a separate matter from the special order, assume the company's inventory includes 1,000 units of this product that were produced last year and 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?

Explanation / Answer

ans 1 in $ Revenue from Special order (1100*21) 23100 Less: Relevant cost (variable cost) (2+4+.9+2)*1100 9790 Financial advantage 13310 ans 2 The relevent cost is only the variable selling price as the production cost has already been incurred Unit cost= $2 variable selling & administrative expenses If any doubt please comment

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