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 86,400 units per year is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses S 1.20 Fixed selling and administrative expenses $1.00 $1.50 $2.00 $ .90 $ 3.55 The normal selling price is $22 per unit. The company's capacity is 103,200 units per year. An order has been received from a mail-order house for 1,400 units at a special price of $19.00 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 by

Explanation / Answer

Per unit 1400 units Incremental revenue 19 26600 Costs: Direct materials 1.5 2100 Direct labor 2 2800 variable manufacturing overhead 0.9 1260 Variable selling and administrative expenses 1.2 1680 Incremental income(loss) 18760 Annual profits would increase by $18760 2 Relavent cost per unit = Variable selling and administrative expenses=$1.2

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