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 60,000 units per year is:

(per unit)

Direct materials........................................................................ $ 5.10

Direct labour............................................................................. $ 3.80

Variable manufacturing overhead ........................................... $ 1.00

Fixed manufacturing overhead ................................................ $ 4.20

Variable selling and administrative expenses.......................... $ 1.50

Fixed selling and administrative expenses............................... $ 2.40

The normal selling price is $21 per unit. The companys capacity is 75,000 units per year. An order has been received from a mail-order house for 15,000 units at a special price of $14.00 per unit. This order would not affect regular sales

Requirements:

1. (a) 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.) Show all computations and use a table to show your work.

b) Which costs, if any, are not relevant to this particular one-time special order decision?

2) Ignore the one-time special order noted above. Instead, assume the company has 1,000 units of this product leftover and unsold from last year 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 leftover units? Explain. What would be the minimum selling price per unit in this situation?