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 105,600 units per year is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $1.90 3.00 0.60 3.45 2.00 $2.00 The normal selling price is $23.00 per unit. The company's capacity is 122,400 units per year. An order has been received from a mail order house for 1,400 units at a special price of $20.00 per unit. This order would not affect regular sales or the company's total fixed costs Required 1. What is the financial advantage (disadvantage) of accepting the special order? 2. As a separate matter from the special order, assume the company's inventory includes 1,000 units of this product that were produced last year and 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?

Explanation / Answer

Calculate financial advantage of special order :

b) Minimum selling price per unit = Total relevant cost per unit = 7.50 per unit

Direct material per unit 1.90 Direct labour per unit 3.00 Variable manufacturing overhead per unit 0.60 Variable selling and administrative exp per unit 2.00 Total relevant cost per unit 7.50 Selling price on special order 20.00 profit per unit 12.50 Unit 1400 Financial advantage on special order 17500

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.