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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 60,000 units per year is:
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.
(b) 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? Explain.

Respuesta :

Net financial advantage for accepting order = $39,000.00

Provided that there will be no disruption to the Company's activities, with this special order, no additional fixed cost shall be incurred.

Further variable costs per unit will be:

Direct material = $5.10

Direct Labor = $3.80

Variable Manufacturing Overhead = $1.00

Variable Selling & Administrative Expense = $1.50

Total variable expense = $11.4

Order of 15,000 units will be sold at $14 per unit.

Therefore, financial advantage = $14 - $11.40 = $2.60 per unit

Net financial advantage for accepting order = $2.60 * 15,000 = $39,000

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