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 97,200 units per year is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $ 2.20 $ 2.00 $ 0.60 $ 4.55 $ 1.60 $1.00 The normal selling price is $21.00 per unit. The company's capacity is 112,800 units per year. An order has been received from a mail- order house for 1,300 units at a special price of $18.00 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. The company does not expect the selling of these inferior units to have any effect on the sales of its current model. 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

Answer 1

Solution 1:

14 Delta Company 16 17 18 19 20 21 22 Computation of financial advantage (disadvantage) from Special Order Amount Sales Revenue (1300* $18) $23,400 Less: Variable costs: Direct materials (1300*$2.20) $2,860 Direct Labor (1300*$2.00) $2,600 Variable Manufacturing Overhead (1300*$0.60) $780 Variable Selling and administrative expenses (1300*$1.60) $2,080 23 24 Financial advantage from Special order $15,080 25 26 27 28 29 30 31 32 33 34 35 36 37 38 40 41 42 43 44 45 46 47 48 49 et537 ) Sheet538 ) Sheet539 ) Sheet540 Sheet541

Solution 2:

Mininmum selling price per unit = variable sellling and administrative expense = $1.60 per unit