**Delta Company's Cost Analysis and Special Order Evaluation** **Production Costs** Delta Company produces a single product. At a normal activity level of 60,000 units per year, the cost of producing and selling a single unit is as follows: - 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 **Sales Information** - Normal selling price: $21 per unit - Production capacity: 75,000 units per year **Special Order Analysis** An order has been received for 15,000 units at a special price of $14.00 per unit from a mail-order house. This order will not impact regular sales or total fixed costs. **Required Evaluations** 1. **Financial Impact of Special Order** - Determine the financial advantage or disadvantage of accepting the special order. 2. **Inferior Quality Inventory** - The company has 1,000 inferior-quality units in inventory. These units must be sold through regular channels at a reduced price. This will not affect regular sales. - Identify the relevant unit cost for establishing a minimum selling price for the inferior units. To solve these requirements, analyze the cost structure and impact on profitability. Consider variable costs, capacity, and contribution margin to decide on the special order's acceptance and minimal pricing for inferior units. **Instructions for Completion** Respond to the questions using the answer tabs provided below each requirement.
**Delta Company's Cost Analysis and Special Order Evaluation** **Production Costs** Delta Company produces a single product. At a normal activity level of 60,000 units per year, the cost of producing and selling a single unit is as follows: - 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 **Sales Information** - Normal selling price: $21 per unit - Production capacity: 75,000 units per year **Special Order Analysis** An order has been received for 15,000 units at a special price of $14.00 per unit from a mail-order house. This order will not impact regular sales or total fixed costs. **Required Evaluations** 1. **Financial Impact of Special Order** - Determine the financial advantage or disadvantage of accepting the special order. 2. **Inferior Quality Inventory** - The company has 1,000 inferior-quality units in inventory. These units must be sold through regular channels at a reduced price. This will not affect regular sales. - Identify the relevant unit cost for establishing a minimum selling price for the inferior units. To solve these requirements, analyze the cost structure and impact on profitability. Consider variable costs, capacity, and contribution margin to decide on the special order's acceptance and minimal pricing for inferior units. **Instructions for Completion** Respond to the questions using the answer tabs provided below each requirement.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:**Delta Company's Cost Analysis and Special Order Evaluation**
**Production Costs**
Delta Company produces a single product. At a normal activity level of 60,000 units per year, the cost of producing and selling a single unit is as follows:
- 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
**Sales Information**
- Normal selling price: $21 per unit
- Production capacity: 75,000 units per year
**Special Order Analysis**
An order has been received for 15,000 units at a special price of $14.00 per unit from a mail-order house. This order will not impact regular sales or total fixed costs.
**Required Evaluations**
1. **Financial Impact of Special Order**
- Determine the financial advantage or disadvantage of accepting the special order.
2. **Inferior Quality Inventory**
- The company has 1,000 inferior-quality units in inventory. These units must be sold through regular channels at a reduced price. This will not affect regular sales.
- Identify the relevant unit cost for establishing a minimum selling price for the inferior units.
To solve these requirements, analyze the cost structure and impact on profitability. Consider variable costs, capacity, and contribution margin to decide on the special order's acceptance and minimal pricing for inferior units.
**Instructions for Completion**
Respond to the questions using the answer tabs provided below each requirement.
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