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 96,000 units per yea is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses $ 1.50 Fixed selling and administrative expenses 1.00 1.60 $2.00 $ .90 $4.95 The normal selling price is $21 per unit. The company's capacity is 116,400 units per year. An order has been received from a mail-order house for 1,700 units at a special price of $18.00 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? (he order will not change the company's total fixed costs.) Annual profits would by 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

Per unit Total Incremental revenue 18 30600 Incremental costs: Direct materials 1.6 2720 Direct labor 2 3400 Variable manufacturing overhead 0.9 1530 Variable selling and administrative expenses 1.5 2550 Total Incremental costs 10200 Incremental income(loss) 20400 Annual profits would increase by $20400 2 Relevant cost per unit = Variable selling and administrative expenses = $1.50

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