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 100,800 units per year is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses $ 1.40 Fixed selling and administrative expenses $ 3.00 $ 2.50 $ 4.00 $ .90 $ 4.45 The normal selling price is $23 per unit. The company's capacity is 134,400 units per year. An order has been received from a mail-order house for 2,800 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 fixed costs.) Annual profits 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.) ant cost per unit

Explanation / Answer

1 calculation of the increase or decrease in the profits account description per unit 2800 units 1 incremental sales ( 2800 * 20 ) 20 56000 2 costs 3 direct materials ( 2800 * 2.50 ) 2.5 7000 4 direct labor ( 2800 * 4 ) 4 11200 5 variable manufacturing ( 2800 * 0.90 ) 0.9 2520 6 variable selling ( 2800 * 1.40 ) 1.4 3920 7 total costs ( 3 + 4 + 5 + 6 ) 24640 8 increased profit ( 1 - 7 ) 31360 annual profit would increase by 31360 2 answer relevant cost per unit 1.4 The relevant cost is 1.40 the variable selling and administrative expenses , All other variable costs are sunk because the units have already been produced , The fixed costs are not relevant because they will not change in total as a consequence of the price charged for the left-over units

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