ezto.mheducation.com Chapter 10 Homework Delta Company produces Delta Company pr

Question

ezto.mheducation.com Chapter 10 Homework Delta Company produces Delta Company produces a single product. The cpst of producing and selling a single unit of this product the company's normal activity level of 104,400 units per year is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses $1.30 Fixed seling and administrative expenses $ 3.00 1.70 4.00 $ 60 $ 4.85 The normal selling price is $23 per unit. The company's capacity is 127 200 units per year. An order has been received from a mail-order house for 1,900 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 foxed costs.) 2. Assume the company has 500 units of this product let over from last year that are inferior to curren 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.) sc :0

Explanation / Answer

Calcualtion of the increased/decreased annual profit -

annual profits would increased by 992490-965700 = 26790

note - as company capacity has 127200 units to produce and this order would not affect regular sales that why have taken 1900 units company would produce additionally.

2. Min . selling price would be = total variable cost + total fixed cost

= 5.9 + 7.85

= 13.75

this unit cost would be relevant to fix the min. selling price per unit.

to fix the min. selling price seller just want to recover his total cost.

Note - the last total manufacturing quantity would be 104400 as its normal capacity. this additional order has to be received in this year.

please comment in case of further clarification required.

Particulars per unit value values Total output 104400 1900 106300 Direct material (per unit*output) 1.7 177480 3230 180710 Direct labor (per unit*output) 4 417600 7600 425200 Variable manufacturing cost (per unit*output) 0.6 62640 1140 63780 variable sellin and adm. Exp.(per unit*output) 1.3 135720 2470 138190 Total variable cost (per unit*output) 5.9 615960 11210 627170 Fixed cost: Fixed manufacturing overhead 4.85 506340 506340 Fixed selling and adm. Exp. 3 313200 313200 Total fixed cost 7.85 819540 819540 Total cost 1435500 1446710 selling price (23*104400),(20*1900) 23 2401200 38000 2439200 Profit (selling price - total cost) 965700 992490

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