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i Chrome File Edit ie History Bookmarks People Window Help Garrison CH 12 Quiz l@ ezto.mheducation.com/hm.tpx D, Sun 2:14 PM a E Garrison CH12 Qulz Question 4 (of 7 Save&Ext; Submit 4 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 97,200 units per year is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses 1.30 Fixed selling and administrative expenses S 2.00 S 1.90 S 3.00 S .70 S 3.25 The normal selling price is $25 per unit. The company's capacity is 120,000 units per year. An order has been received from a mail-order house for 1,900 units at a special price of $22.00 per unit. This order would not affect regular sales Required 1 lf 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.) s would 5

Explanation / Answer

1. Calculate annual profit increase by special order :

Profit will increase by 28690

2) Minimum selling price = (1.90+3+.70+1.30) = 6.90 per unit

Incremental revenue 41800 Less: Incremental cost Direct material (3610) Direct labour (5700) variable manufacturing overhead (1330) Variable selling and administrative exp (2470) Incremental profit 28690

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