Homework SourseDelta 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 100,800 units per year is:
The normal selling price is $24 per unit. The company’s capacity is 118,800 units per year. An order has been received from a mail-order house for 1,500 units at a special price of $21.00 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.)
| 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: |
Solution
Effect of net income ;
Annual profit be increase by $18900
| Incremental revenue (1500*21) | 31500 |
| Incremental cost | |
| Direct material (1500*1.6) | 2400 |
| Direct labour (1500*4) | 6000 |
| Variable manufacturing overhead (1500*.80) | 1200 |
| Variable selling and administrative expenses (1500*2) | 3000 |
| Net operating income | 18900 |
