Delta Company Produces a Single Product

Delta Company produces a single product for $1.99 Only (Instant Download)

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 91,200 units per year is:

Direct materials$1.90
Direct labor$2.00
Variable manufacturing overhead$0.70
Fixed manufacturing overhead$5.05
Variable selling and administrative expenses$2.10
Fixed selling and administrative expenses$1.00

The normal selling price is $25.00 per unit. The company’s capacity is 117,600 units per year. An order has been received from a mail-order house for 2,200 units at a special price of $22.00 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. What unit cost is relevant for establishing a minimum selling price for these units?

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Claire Company Produces

Claire Company Produces in $9 onlyClaire Company Produces

Problem 7-20 Claire Company produces Tablets and Books. Total overhead costs traditionally have been allocated on the basis of direct labor hours. After implementing activity-based costing, managers determined the following cost pools and cost drivers. They also decided that general costs should no longer be allocated to products.

Activity PoolDepartment CostsCost Driver
Binding$241,763Number of units
Printing820,821Machine hours
Product design185,198Change orders
General628,500None
Total overhead costs$1,876,282

Other information is as follows: