Export order Delta Screens Corporation is currently operating at \(60 \%\) of capacity in producing 6,000 screens annually. Delta recently received an offer from a company in Germany to purchase 2,000 screens at \(\$ 500\) per unit. Delta has not previously sold products in Germany. Budgeted production costs for 6,000 and 8,000 screens follow:

Delta has been selling its product at a markup of \(10 \%\) above full cost. Delta's marketing manager believes that although the price offered by the German customer is lower than current prices, Delta should accept the order to gain a foothold in the German market. The production manager, however, believes that Delta should reject the order because the unit cost is higher than the price offered.
Required

a. Explain what causes the apparent decrease in cost from \(\$ 600\) per unit to \(\$ 550\) per unit when production increases from 6,000 to 8,000 units.

b. If the president of Delta Screens Corporation calls on you to resolve the difference in opinions, what will you recommend? Why?

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NUMBER OF UNITS PRODUCED COSTS 6,000 8,000 Direct materials $750,000 $1,000,000 Direct labor 750,000 1,000,000 Support 2,100,000 2,400,000 Total costs $3,600,000 $4,400,000 Full cost per unit $600 $550