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 91,200 units per year is:

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 91,200 units per year is:

2.10.00 points 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 91,200 units per year is Direct materials Direct labor Vari $1.80 3.00 able manufacturing overhead Fixed manufacturing overhead $.60 $ 4.35 Variable selling and administrative expenses $ 1.70 Fixed selling and administrative expenses 2.00 The normal selling price is $20 per unit. The company's capacity is 105,600 units per year. An order has been received from a mail-order house for 1,200 units at a special price of $17.00 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.) nual profits would Increase 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

Answer:

1

Profits would increase by

$

11,880

Working notes for the answer:

Per Unit

1,200 Units

Incremental sales

17

20400

Incremental costs:

Direct materials

1.8

2160

Direct labor

3

3600

Variable manufacturing overhead

0.6

720

Variable selling and administrative

1.7

2040

Total incremental costs

7.1

8520

Incremental profits

9.9

11880

_________________________________________________

2

Relevant cost

$

1.7

Explanation to the answer:

The relevant cost for this decision is = $1.70 (we consider only variable selling & administrative expenses here). Because other variable costs are considered as the sunk .(such units were already been produced.)

Here fixed costs is not relevant because it will not change in total as a consequence of the price charged for the left-over units

Profits would increase by

$

11,880

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