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: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $ 2.00 $ 3.00 $ 1.00 $ 3.35 $ 1.30 $ 2.00 The normal selling price is $24.00 per unit. The company's capacity is 122,400 units per year. An order has been received from a mail- order house for 2,600 units at a special price of $21.00 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the financial advantage (disadvantage) of accepting the special order?

Explanation / Answer

1 Per unit 2600 units Incremental revenue 21 54600 Costs: Direct materials 2 5200 Direct labor 3 7800 Variable manufacturing overhead 1 2600 Variable selling and administrative expenses 1.3 3380 Financial advantage 35620 2 Relevant cost = Variable selling and administrative expenses = $1.30

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