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 that were produced last year and that are inferior to the current model. The units must be sold through regular channels at reduced prices. The company does not expect the selling of these inferior units to have any affect on the sales of its current model. What unit cost is relevant for establishing a minimum selling price for the inferior units?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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 105,600 units per year is:
$ 2.00
$ 2.00
$ 1.00
$ 4.25
$ 1.20
$ 1.00
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 $22.00 per unit. The company's capacity is 117,600 units per year. An order has been
received from a mail-order house for 1,000 units at a special price of $19.00 per unit. This order would not affect
regular sales or the company'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 that were produced last year and that are inferior to the current model. The units must be sold through
regular channels at reduced prices. The company does not expect the selling of these inferior units to have any
affect on the sales of its current model. What unit cost is relevant for establishing a minimum selling price for the
inferior units?
Transcribed Image Text: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 105,600 units per year is: $ 2.00 $ 2.00 $ 1.00 $ 4.25 $ 1.20 $ 1.00 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 $22.00 per unit. The company's capacity is 117,600 units per year. An order has been received from a mail-order house for 1,000 units at a special price of $19.00 per unit. This order would not affect regular sales or the company'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 that were produced last year and that are inferior to the current model. The units must be sold through regular channels at reduced prices. The company does not expect the selling of these inferior units to have any affect on the sales of its current model. What unit cost is relevant for establishing a minimum selling price for the inferior units?
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