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 94,800 units per year is: points Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $ 2.30 $ 3.00 $ 1.00 $5.25 $ 1.40 $ 2.00 eBook Hint The normal selling price is $24.00 per unit. The company's capacity is 120,000 units per year. An order has been received from a mail- order house for 2,100 units at a special price of $21.00 per unit. This order would not affect regular sales or the company's total fixed costs. Print 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? References 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? Required 1 Required 2 >

Answer 1

1
	Per unit	Total 2100 units
Incremental revenue	21.00	44100
Incremental costs:
Direct materials	2.30	4830
Direct labor	3.00	6300
Variable manufacturing overhead	1.00	2100
Variable selling and administrative costs	1.40	2940
Total Incremental costs		16170
Incremental net operating income(loss)		27930
Financial advantage 27930
2
Relevant cost per unit = Variable selling and administrative costs = 1.40