1-a. Assume that Andretti Company has sufficient capacity to produce 106,600 Dak
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Question
1-a. Assume that Andretti Company has sufficient capacity to produce 106,600 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 30% above the present 82,000 units each year if it were willing to increase the fixed selling expenses by $150,000. What is the financial advantage (disadvantage) of investing an additional $150,000 in fixed selling expenses?
1-b. Would the additional investment be justified?
2. Assume again that Andretti Company has sufficient capacity to produce 106,600 Daks each year. A customer in a foreign market wants to purchase 24,600 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $2.70 per unit and an additional $19,680 for permits and licenses. The only selling costs that would be associated with the order would be $2.60 per unit shipping cost. What is the break-even price per unit on this order?
3. The company has 800 Daks on hand that have some irregularities and are therefore considered to be "seconds." Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost figure that is relevant for setting a minimum selling price?
4. Due to a strike in its supplier’s plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at 25% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 35% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20% during the two-month period.
a. How much total contribution margin will Andretti forgo if it closes the plant for two months?
b. How much total fixed cost will the company avoid if it closes the plant for two months?
c. What is the financial advantage (disadvantage) of closing the plant for the two-month period?
d. Should Andretti close the plant for two months?
An outside manufacturer has offered to produce 82,000 Daks and ship them directly to Andretti’s customers. If Andretti Company accepts this offer, the facilities that it uses to produce Daks would be idle; however, fixed manufacturing overhead costs would be reduced by 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. What is Andretti’s avoidable cost per unit that it should compare to the price quoted by the outside manufacturer?
Andretti Company has a single product called a Dak. The company normally produces and sells 82,000 Daks each year at a selling price of $60 per unit. The company's unit costs at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses Total cost per unit $ 8.50 12.00 3.10 9.00 ($738,000 total) 1.70 4.00 ($328,000 total) $38.30 A number of questions relating to the production and sale of Daks follow. Each question is independent.Explanation / Answer
ans 1a in $ No. of units additionally sold 82000*30% 24600 Increase in sales revenue (82000*30%*60) 1476000 Additional variable cost 622380 (8.5+12+3.1+1.7)*24600 Increase in Profit 853620 Less: Increase in fixed selling expenses 150000 Financial advantage 703620 ans ans 1b Yes it is justified Ans 2 Break even price per unit Direct material $8.50 Direct labor 12 Variable Manufacturing overhead 3.1 Import duties 2.7 Variable selling expenses 2.6 Permits 19680/24600 0.8 Ans 2 Break even price per unit $29.70 ans 3 Relevant unit cost is the variable selling expenses as it needs to be incurred to sell. $1.7 is relevant ans 4 Production 82000/12*25%*2 months 3417 Contribution margin forgone 118570 ans 4a (60-8.5-12-3.1-1.7)*3417 4b Fixed cost avoided Fixed manufacturing overhead 738000/12*2 months*65% 79950 Fixed selling expenses 328000/12*2*20% 10933 Total fixed cost avoided 90883 ans 4b 4c Contribution margin forgone 118570 Less: Fixed cost avoided Fixed manufacturing overhead 79950 Fixed selling expenses 10933.33 90883 Financial disadvantage ans 4c -27687 ans 4d No he should not close the plant Dear student the answer for 4 is in decimals. And I have rounded it off If vany discrepency please comment Ans 5 Avoidable cost per unit Variable Manufacturing cost (8.5+12+3.1) 23.6 Fixed manufacturing overhead (9*30%) 2.7 Variable selling expenses 1.7*1/3 0.57 Avoidable cost per unit 26.87
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