Question 1. 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 103,200 units per year is:

Direct materials	$	1.60
Direct labor	$	3.00
Variable manufacturing overhead	$	0.90
Fixed manufacturing overhead	$	3.45
Variable selling and administrative expenses	$	2.10
Fixed selling and administrative expenses	$	2.00

The normal selling price is $19.00 per unit. The companys capacity is 117,600 units per year. An order has been received from a mail-order house for 1,200 units at a special price of $16.00 per unit. This order would not affect regular sales or the companys 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 companys 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 effect on the sales of its current model. What unit cost is relevant for establishing a minimum selling price for these units?

Question 2.

Bed & Bath, a retailing company, has two departmentsHardware and Linens. The companys most recent monthly contribution format income statement follows:

				Department
	Total			Hardware			Linens
Sales	$	4,190,000		$	3,020,000		$	1,170,000
Variable expenses		1,235,000			832,000			403,000
Contribution margin		2,955,000			2,188,000			767,000
Fixed expenses		2,250,000			1,380,000			870,000
Net operating income (loss)	$	705,000		$	808,000		$	(103,000	)

A study indicates that $371,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 14% decrease in the sales of the Hardware Department.

Required:

What is the financial advantage (disadvantage) of discontinuing the Linens Department?