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 104,400 units per year is Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses $ 1.60 Fixed selling and administrative expenses 1.00 $1.90 2.00 $ .90 $5.15 The normal selling price is $20 per unit. The company's capacity is 130,800 units per year. An order has been received from a mail-order house for 2,200 units at a special price of $17.00 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? (The order will not change the company's total fixed costs.) nual 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.) Relevant cost per unit

Explanation / Answer

Ans 1 . Profit would increased by $ 23,320.00 Calculation of increamental profit on 2200 units Per unit Increamental sales $        17.00 $ 37,400.00 Increamental cost Direct material $           1.90 Direct labour $           2.00 Variable manufacturing overhead $           0.90 Variable selling and administrative $           1.60 Total incremental cost $           6.40 $ 14,080.00 Increamenatal profit $ 23,320.00 Ans. 2     The relevant cost is $1.60 (the variable selling and administrative costs). All other variable costs are sunk, since the units have already been produced. The fixed costs would not be relevant, since they will not be affected by the sale of leftover units * Increamental sales = 2200*17 = 37400 *Increamental cost = 2200*6.40 = 14080

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

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