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 98,400 units per year is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses $ 1.90 Fixed selling and administrative expenses S2.00 $ 2.40 $ 3.00 $ 80 $5.15 The normal selling price is $24 per unit. The company's capacity is 123,600 units per year. An order has been received from a mail-order house for 2,100 units at a special price of $21.00 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

Explanation / Answer

Fixed expenses will be remain same irrespective of number of units produced or sold

if company accepts special order, annual profit of the company will increase by $27,090.

Sales (2,100*$21)    44,100 Less: Direct material (2,100*$2.40)      5,040 Direct labour ($2,100*$3)      6,300 Variable manufacturing overhead (2,100*$0.80)      1,680 Variable selling and administrative expenses (2,100*$1.90)      3,990 Net income    27,090

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