EXERCISE 12-9 Special Order [L012-4] 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: ........ Direct materials ........ ...... Direct labor .............. Variable manufacturing overhead ....... Fixed manufacturing overhead Variable selling and administrative expense ... Fixed selling and administrative expense ....... $5.10 $3.80 $1.00 $4.20 $1.50 $2.40 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. 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.) 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? Explain.
Related questions
| Delta Company produces a single product. The cost of producing and selling a single unit of this product at the companyâs normal activity level of 97,200 units per year is: |
| Direct materials | $ | 2.40 | |
| Direct labor | $ | 2.00 | |
| Variable manufacturing overhead | $ | .90 | |
| Fixed manufacturing overhead | $ | 4.55 | |
| Variable selling and administrative expenses | $ | 1.80 | |
| Fixed selling and administrative expenses | $ | 1.00 | |
| The normal selling price is $25 per unit. The companyâs capacity is 109,200 units per year. An order has been received from a mail-order house for 1,000 units at a special price of $22.00 per unit. This order would not affect regular sales.
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Delta Company produces a single product. The cost of producing and selling a single unit of this product at the companyâs normal activity level of 91,200 units per year is:
| Direct materials | $ | 1.90 | |
| Direct labor | $ | 2.00 | |
| Variable manufacturing overhead | $ | 0.70 | |
| Fixed manufacturing overhead | $ | 5.05 | |
| Variable selling and administrative expenses | $ | 2.10 | |
| Fixed selling and administrative expenses | $ | 1.00 | |
The normal selling price is $25.00 per unit. The companyâs capacity is 117,600 units per year. An order has been received from a mail-order house for 2,200 units at a special price of $22.00 per unit. This order would not affect regular sales or the companyâs 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 companyâs 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?
