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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 8,200 units per year is:

 

 

 

 

  Direct materials

$1.90  

 

  Direct labor

$4.00  

 

  Variable manufacturing overhead

$1.00  

 

  Fixed manufacturing overhead

$4.15  

 

  Variable selling and administrative expense

$2.40  

 

  Fixed selling and administrative expense

$3.00  

 

 

 

The normal selling price is $18 per unit. The company’s capacity
is 20,000 units per year. An order has been received from a
mail-order house for 1,800 units at a special price of $10 per
unit. This order would not affect regular sales.

 

Requirement 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.) (Input the amount as positive
value. Omit the “$” sign in your
response.)

 

  Profits would  by

 

 

Requirement 2:

 

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? (Round your answer to 2 decimal places. Omit the “$”
sign in your response.)

 

  Relevant cost

 

 

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