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ezto.mheducation.com/hm.tpx Apple a Amazon .. Hotmail G Google n Facebook YouTube NNetflix Kickass e0e 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 102,000 units per year is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses $ 1.30 Fixed selling and administrative expenses $2.00 2.10 3.00 $ 60 3.75 The company's capacity is 133,200 units per year. An order has been received from a mail-order house for 2,600 units at a special price of $15.00 per unit. This order would not affect reguiar sales. Required: 1. if the order is accepted, by how much will annual profits be increased or de creased? (The order will not 8 2

Explanation / Answer

Delta Company       1 For the special order only variable costs will be relevant as fixed costs do not change. The total contibution margin from the special order will be the amount bu which the net operating income should increase. Special Order : 2600units Details Amt$ Units Sales Price                15.00 Less Variable costs Direct Materials /unit                  2.10 Direct labor/Unit                  3.00 Variable Manufacturing OH/unit                  0.60 Variable selling & Admin cost/unit                  1.30 Total Unit Variable cost                  7.00 Unit contribution Margin                  8.00 Total Contribution from 2600 units        20,800.00 So annual profit will increase by $20,800       2 Relevant cost per unit for inferior old stock will be   Variable cost/unit =$7 per unit as the Fixed costs can be trated as sunk cost

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