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 98,400 units per year is Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses $ 1.10 Fixed selling and administrative expenses $ 3.00 $ 1.70 $ 4.00 $ 60 $ 4.95 The normal selling price is $23 per unit. The company\'s capacity is 117,600 units per year. An order has been received from a mail-order house for 1,600 units at a special price of $20.00 per unit This order would not affect regular sales Required: 1. 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) nual profits would 2. Assume the company has 500 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.) elevant cost per unit

Solution

Per unit Total 1600 units Incremental revenue 23 36800 Incremental costs: Direct materials 1.7 2720 Direct labor 4 6400 Variable manufacturing overhead 0.6 960 Variable selling and administrative expenses 1.1 1760 Total Incremental costs 11840 Incremental net operating income(loss) 24960 Annual profits would increase by $24960 2 Relevant cost per unit = Variable selling and administrative expenses = $1.1