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 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 or total fixed costs. $ 5.10 $ 3.80 $ 1.00 $ 4.20 $ 1.50 $ 2.40 Required: 1. What is the financial advantage (disadvantage) of accepting the special order? 2. As a separate matter from the special order, assume the company's inventory includes 1,000 units that are inferior quality. The units must be sold through regular channels at a reduced price. The company does not expect the selling of these inferior units to affect regular sales. What unit cost is relevant for establishing a minimum selling price for the inferior units? Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the financial advantage (disadvantage) of accepting the special order?
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 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 or total fixed costs. $ 5.10 $ 3.80 $ 1.00 $ 4.20 $ 1.50 $ 2.40 Required: 1. What is the financial advantage (disadvantage) of accepting the special order? 2. As a separate matter from the special order, assume the company's inventory includes 1,000 units that are inferior quality. The units must be sold through regular channels at a reduced price. The company does not expect the selling of these inferior units to affect regular sales. What unit cost is relevant for establishing a minimum selling price for the inferior units? Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the financial advantage (disadvantage) of accepting the special order?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:**Delta Company Production Costs and Special Order Analysis**
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:** $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
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 or 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 company’s inventory includes 1,000 units that are of inferior quality. The units must be sold through regular channels at a reduced price. The company does not expect the selling of these inferior units to affect regular sales. What unit cost is relevant for establishing a minimum selling price for the inferior units?
**Instructions:**
Complete this question by entering your answers in the tabs below.
- **Required 1:** (Answer input area)
- **Required 2:** (Answer input area)
This scenario provides a practical example of evaluating cost considerations for special orders and inventory management.
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