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 as follows: Direct materials $ 6.10 Direct labour 3.80 Variable manufacturing overhead 2.00 Fixed manufacturing overhead 4.20 Variable selling and administrative expense 2.50 Fixed selling and administrative expense 2.40 The normal selling price is $25 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 $16 per unit. This order would not affect regular sales. Required: 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.) (Do not round intermediate calculations.) 2. This part of the question is not part of your Connect assignment. 3. Assume the company has 1,000 units of this product left over from last year that are vastly inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost figure is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places.)
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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 as follows:
| Direct materials | $ | 6.10 |
| Direct labour | 3.80 | |
| Variable manufacturing |
2.00 | |
| Fixed manufacturing overhead | 4.20 | |
| Variable selling and administrative expense | 2.50 | |
| Fixed selling and administrative expense | 2.40 | |
The normal selling price is $25 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 $16 per unit. This order would not affect regular sales.
Required:
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.) (Do not round intermediate calculations.)
2. This part of the question is not part of your Connect assignment.
3. Assume the company has 1,000 units of this product left over from last year that are vastly inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost figure is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places.)
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