9. Delta Company produces a single product. The cost of producing and selling a single unit of this product at the companys normal activity level of 26,000 units per year is:

Direct materials $2.50

Direct labor 1.20

Variable overhead .50

Fixed overhead 2.10

Variable selling and

administrative expense .40

Fixed selling and

administrative expense .80

The normal selling price is $10 per unit. The companys capacity is 30,000 units per year. An order has been received from a mail-order house for 4,000 units at a special price of $7 per unit. This order would not disturb regular sales. If the order is accepted, by how much will annual profits be increased or decreased? (The order will not change the companys total fixed costs.)

a. $2,000 increase

b. $2,000 decrease

c. $9,600 increase

d. $9,600 decrease

10. Refer to the data in #9. Assume the company has 500 units of this product left over from last year that are vastly inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost figure is relevant for establishing a minimum selling price for these units?

a. $ .40

b. none of the costs are relevant

c. $ .80

d. $4.60