Exercise 10-9 Special Order [LO10-4] Delta Company produces a single product. Th

Question

Exercise 10-9 Special Order [LO10-4]

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 60,000 units per year is:

The normal selling price is $21 per unit. The company’s capacity is 75,000 units per year. An order has been received from a mail-order house for 15,000 units at a special price of $14.00 per unit. This order would not affect regular sales.

If the order is accepted, by how much will annual profits be increased or decreased? (The order will not change the company’s total fixed costs.)

Assume the company has 1,000 units of this product left over from last year 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? (Round your answer to 2 decimal places.)

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 60,000 units per year is:

Explanation / Answer

Per unit Total 15000 units Incremental revenue 14 210000 Incremental costs: Direct materials 5.1 76500 Direct labor 3.8 57000 Variable manufacturing overhead 1 15000 Variable selling and administrative expense 1.5 22500 Total Incremental costs 171000 Incremental net operating income(loss) 39000 2 Relevant unit cost= Variable selling and administrative expense = $1.50

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