e2t6.mhédu Delta Company produces a single product. The cost of producing and se

Question

e2t6.mhédu Delta Company produces a single product. The cost of producing and selling a single unit of this product the company's normal activity level of 92,400 units per year is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses $ 1.70 Fixed selling and administrative expenses 1.00 $ 2.00 $ 2.00 $ .60 3.35 The normal selling price is $19 per unit. The company's capacity is 112,800 units per year been received from a mail-order house for 1,700 units at a special price of $16.00 per unit. This not affect regular sales. order wou 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 profitis would 2. Assume the company has 500 units of this product left over from last year 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? (Round your answer to 2 decimal places.) Relevant cost per unit

Explanation / Answer

Answer 1. Calculation of Increase in Profits if Special Order is Accepted - 1,700 Units Incremental Sales - 1700 Units X $16          27,200 Incremental Cost: Direct Material - 1700 Units X $2          3,400 Direct Labor - 1700 Units X $2          3,400 Variable MOH - 1700 Units X $0.60          1,020 Variable Selling & Admn. Exp. - 1700 Units X $1.70          2,890          10,710 Incremental Profit          16,490 Annual Profits would increased by $16,490 Fixed Costs are not relevant for decision making, since they are sunk cost because they will be incurred whether special order is accepted or not. Answer 2. All the costs incurred in past are sunk cost or not relevant in the decision making. Only the variable selling and adminstration expenses are relevant here. Relevant Cost per Unit = $1.70 per Unit (Variable Selling & Adminstration Expenses)

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