Question

Delta Company produces a single product. The cost of producing and selling a single unit of the product at the company’snormal activity level of 60,000 units per year is:Directmaterials.................................... $5.10Directlabor........................................ $3.80Variable manufacturing overhead .... . . . . . . . . . . . . . . .. $1.00Fixed manufacturingoverhead.......... $4.20Variable selling and administrative expense . . . . . . . . . . . $1.50Fixed selling and administrative expense. . . . . . . . . . . . . . $2.40The normal selling price is 821 per unit The company’s capacity is 75,000 units per year. An order has been received froma mail-order house for 15,000 units at a special price of $14.00 per unit. This order would not affect regular sales or thecompany’s 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 of this product thatwere produced last year and that are inferior to the current model. The units must be sold through regular channels atreduced prices. What unit cost is relevant for establishing a minimum selling price for these units? Explain.

Answer 1

I assumed you typo 821 by $21 per unit, then the answer will be

1-  financial disadvantage of accepting the special order is loss of $60,000

2- a minimum selling price for these units should be $14.00

Explanation:

Loss of $60,000 = 15,000 x (14,000 – (5.1+3.8+1+4.2+1.5+2.4))

a minimum selling price for these units is $14.00 per unit because it’s the price the company can earn if accept a special order, though lower than cost of producing and selling at $18.00