Q1) Delta Company manufactures single product. Cost of producing and selling single unit of this product at the company normal activity level of 60,000 units per year is:
| Direct materials |
$5.10 |
| Direct labor |
$3.80 |
| Variable manufacturing overhead |
$1.00 |
| Fixed manufacturing overhead |
$4.20 |
| Variable selling and administrative expense |
$1.50 |
| Fixed selling and administrative expense |
$2.40 |
Normal selling price is $21 per unit. Company capacity is 75,000 units per year. Order has been got from mail-order house for 15,000 units at special price of $14 per unit. This order would not affect regular sales.
Questions:
1. If order is accepted, by how much will annual profits be increased or decreased? (Order will not change company total fixed costs.)
2. Suppose company has 1,000 units of this product left over from last year which are vastly inferior to present model. Units should be sold through regular channels at reduced prices. What unit cost figure is appropriate for establishing minimum selling price for these units? Describe.