60.1K

Verified Solution

Link Copied!

Delta Company produces a single product. The cost of producing and selling a single unit of this product at the companys normal activity level of 106,800 units per year is:

Direct materials	$ 1.90
Direct labor	$ 2.00
Variable manufacturing overhead	$ 0.70
Fixed manufacturing overhead	$ 4.45
Variable selling and administrative expense	$ 1.90
Fixed selling and administrative expense	$ 1.00

The normal selling price is $25.00 per unit. The companys capacity is 128,400 units per year. An order has been received from a mail-order house for 1,800 units at a special price of $22.00 per unit. This order would not affect regular sales or the companys total fixed costs.

Required:

1.What would be the total financial impact of accepting the special order? (Indicate negative cash flows with a negative sign.)

2. As a separate matter from the special order, assume the companys 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. The company does not expect the selling of these inferior units to have any affect on the sales of its current model. What unit cost is relevant for establishing a minimum selling price for the inferior units? (In other words, what is the least they can charge for these units and not lose money?)

Answer & Explanation Solved by verified expert

See Answer