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 100,800 units per year is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $1.50 $ 4.00 $1.00 $ 4.75 $ 1.20 $ 3.00 The normal selling price is $19.00 per unit. The company's capacity is 129,600 units per year. An order has been received from a mail- order house for 2,400 units at a special price of $16.00 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?

Answer 1

• 1.

Analysis of special order

Sales revenue (2,400 x 16)	38,400
Costs:
Direct material (2,400 x 1.50)	-3,600
Direct labor (2,400 x 4)	-9,600
Variable manufacturing overhead (2,400 x 1)	-2,400
Variable selling and administrative expenses (2,400 x 1.20)	-2,880
Net income	$19,920

Financial advantage of accepting the special order = $19,920

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