Delta Company produces a single product The cost of producin

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 86,400 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 $ 4.00 $ 0.50 $ 4.15 $1.90 $3.00 The normal selling price is $25.00 per unit. The company\'s capacity is 111,600 units per year. An order has been received from a mail- order house for 2,100 units at a special price of $22.00 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. 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 1Required 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. What unit cost is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places.) Show less t cost per u Required 1 Required 2

Solution

1.Financial Advantage of Accepting the order

If the special order for 2,100 Unit is accepted, then the annual profits would Increase by $28,140

Particulars

Per Unit

2,100 Units

Incremental sales

$22.00

$46,200

Incremental costs ;

Direct materials

$2.20

$4,620

Direct labor

$4.00

$8,400

Variable manufacturing overhead

$0.50

$1,050

Variable selling and administrative

$1.90

$3,990

Total incremental costs

$8.60

$18,060

Incremental profits

$13.40

$28,140

2.Unit cost relevant for establishing a minimum selling price for these units

The relevant cost per unit is $1.90 (Variable selling and administrative expenses). All other variable costs are sunk costs. The fixed costs are not relevant because they will not change in total

Particulars	Per Unit	2,100 Units
Incremental sales	$22.00	$46,200
Incremental costs ;
Direct materials	$2.20	$4,620
Direct labor	$4.00	$8,400
Variable manufacturing overhead	$0.50	$1,050
Variable selling and administrative	$1.90	$3,990
Total incremental costs	$8.60	$18,060
Incremental profits	$13.40	$28,140