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 90,000 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 S .90 $4.15 The normal selling price is $21 per unit. The companys capacity is 116,400 units per year. An order has been received from a mail-order house for 2,200 units at a special price of $18.00 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.) al profits would Increase 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.) elevant cost per unit

Explanation / Answer

1 Per unit Total 2200 units Incremental revenue 18 39600 Incremental costs: Direct materials 2 4400 Direct labor 2 4400 Variable manufacturing overhead 0.9 1980 Variable selling and administrive expenses 1.7 3740 TotalIncremental costs 6.6 14520 Incremental income(loss) 25080 Annual profits would increase by $25080 2 Relevant cost per unit =Variable selling and administrive expenses = $1.70

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