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 96,000 units per year is: Direct materials Direct labor Variable manufacturing overhead Fxed manufacturing overhead Variable seling and administrative expenses Fixed selling and administrative expenses $ 2.00 $ 3.00 $ 70 $ 3.65 $1.60 $2.00 The normal selling price is $24 per unit. The company\'s capacity is 129,600 units per year. An order has been received from a mail-order house for 2,800 units at a special price of $21.00 per unit. This order would not affect regular sales Required: 1. If the order is accepted, by how much wll annual profits be increased or decreased? (The order will not change the company\'s total fixed costs.) b0p0oD00000 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.)

Solution

1) Selling price per unit 21 less:Variable cost Direct Materials 2 Direct labor 3 Variable manufacturing overhead 0.7 variable selling & adm expense 1.6 total variable expense 7.3 Contribution margin 13.7 contribution margin on special order 2800*13.7 24660 answer annual profit would increase by $24,660 2) $1.60 variable selling and administrative expense is relevant cost