Andretti Company has a single product called a Dak. The company normally produce

Question

Andretti Company has a single product called a Dak. The company normally produces and sells 87,000 Daks each year at a selling price of $48 per unit. The company's unit costs at this level of activity are given below: $ 7.50 Direct materials Direct labor Vari able manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses 9.00 3.50 8.00 ($696,000 total) 3.70 5.50 ($478,500 total) Total cost per unit $ 37.20 A number of questions relating to the production and sale of Daks follow. Each question is independent. Required 1-a. Assume that Andretti Company has sufficient capacity to produce 108,750 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 25% above the present 87,000 units each year if it were willing to increase the fixed selling expenses by $140,000. Calculate the incremental net operating income. (Round all dollar amounts to 2 decimal places.) Increased sales in units Contribution margin per unit Incremental contribution margin Less added fixed selling expense Incremental net operating incom

Explanation / Answer

1) Calculation of Contribution margin per unit (Amount in $)

1-a) Calculation of net incremental operating Income (Amount in $)

1-b) Yes, the increased selling expenses would be justified as it results in net incremental operating income of $388,525

2) Calculation of Break even Price per unit (Amount in $)

3) As it is impossible due to some irregularities to sell these 500 darks at normal price thus the company should recover its variable manufacturing cost only for setting a minimum selling price. thus the relevant cost is $20 (7.5+9.0+3.5) (i.e. variable manufacturing cost)

4) Calculation of impact on profits of closing the plant (Amount in $)

Selling Price per unit 48 Less: Variable costs per unit Direct Material (7.50) Direct Labour (9.00) Variable Manufacturing Overhead (3.50) Variable Selling Expenses (3.70) Contribution Margin per unit 24.30

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.